“These countries carry certain sectors that are growing,” Mobius said, adding that he favours Vietnam, Saudi Arabia, Kenya and in the future, Nigeria, once its foreign exchange controls are eliminated.
Growth rates in these countries, with the exception of Saudi Arabia, are forecast to increase at a faster rate than emerging and developing economies in 2017, according to data from the World Bank.
| Market | Growth rate |
| Vietnam | 6.3% |
| Kenya | 6.1% |
| Nigeria | 3.5% |
| Saudi Arabia | 2.0% |
| Emerging and developing economies | 4.4% |
| World | 2.8% |
Source: World Bank
In terms of stock performance, the MSCI Frontier Markets index have also consistently outperformed the MSCI Emerging Markets index on a three-year horizon to 28 December, according to data from FE Analytics.
However, these markets also carry risks, particularly liquidity risk, according to Mobius.
“Many of these markets are small, so you can have problems getting in and out if you are invested in these markets. You’ve got to take a long-term view,” he said.
He added that interest rates may impact frontier markets, not because of the rates themselves but because of investor psychology. He explained that many investors are concerned that when interest rates go up, markets go down.
“But that doesn’t happen. If you look at the last ten years, there are many times when interest rates went up, the market goes went as well,” he said, adding that he doesn’t worry about interest rates hikes in the US. “It is all about specific countries and industries with a certain issue.”
In terms of frontier market sectors, Mobius is overweight telecommunications and consumer stocks, especially since income per capita is steadily increasing, he said.
On the flipside, he is a little bit underweight industrials and materials. Companies in the materials sector have not performed well recently given that commodity prices are not doing well, he said.
Frontier fixed income
On the fixed income front, frontier markets are also one of the few asset classes that have been able to deliver positive returns for each of the last four years, Kenneth Akintewe, Aberdeen Asset Management’s senior investment manager for Asia fixed income, said previously.
Aberdeen is promoting a frontier emerging bond strategy, as frontier markets tend to be much more impacted by domestic policies and have comparatively low volatility and smaller exposure to foreign investors than more developed markets, he said.
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The three-year performance of the Templeton Frontier Markets Fund, which Mobius co-manages with Carlos Hardenberg, versus its benchmark, according to data from FE Analytics.
