Your Best Aggressive-Growth Plays
Last Friday in Wealth Watch, I briefed you on how attractively valued emerging markets are right now.
But what I didn’t get around to is another great moneymaker: “frontier markets.”
Frontier markets are made up of countries that are less established, with lower living standards than emerging markets.
The MSCI Frontier Markets Index is composed of 29 countries: Argentina, Bahrain, Bangladesh, Burkina Faso, Benin, Croatia, Estonia, Guinea-Bissau, Ivory Coast, Jordan, Kenya, Kuwait, Lebanon, Lithuania, Kazakhstan, Mauritius, Mali, Morocco, Niger, Nigeria, Oman, Romania, Serbia, Senegal, Slovenia, Sri Lanka, Togo, Tunisia and Vietnam.
The market capitalization of all the stocks that trade in those 29 countries is only 0.3% of the global total.
For perspective, the market cap of emerging markets — such as Brazil and China — is 8.8% of the global total.
Frontier Markets are Small, the Profit Opportunity Is Not
Just take a look at the sheer size of Africa… The U.S., China and India plus many more countries would all fit into Africa:
I’ve never considered investing in Tunisia or Burkina Faso before, but I am very interested in natural resources — hard asset investments — and Africa has the richest deposits of natural resources on the planet.
Africa is a leading producer of diamonds, gold, silver, copper, sugar, salt, lumber, iron, cocoa beans, cobalt, uranium, bauxite and of course oil.
Plus, Booming Population Growth
The middle class is rapidly growing in frontier markets.
Africa, for example, has the fastest-growing middle class in the entire world, doubling to 313 million people in the last two decades. That growing middle class translates into consumers with plenty of money to spend.
According to the Gates Foundation, Africa’s population is expected to double by 2050, which means a rapidly expanding workforce.
Frontier markets have a low correlation to developed markets and provide an extra layer of diversification.
The MSCI Frontier Markets Index has a low 59% correlation with the S&P 500.
Frontier markets are more risky than developed markets. They can be politically unstable, often have low liquidity, are subject to questionable financial reporting and sometimes see large currency fluctuations.
However, there are also huge profits to be made in frontier markets and I encourage long-term investors with a high tolerance for volatility to include a 5–10% allocation to frontier markets.
If you’re not prepared to do your own homework into which frontier markets have the best profit potential, you can still invest in them with a single mouse click.
In fact, there are three ETFs you should consider immediately:
- Guggenheim Frontier Markets ETF (FRN)
- IShares MSCI Frontier 100 ETF (FM)
- Global X Next Emerging & Frontier ETF (EMFM).
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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