Not for the timid investor, frontier markets are another step or two more risky than emerging markets. They are countries just allowing businesses to sell shares in their companies by setting up stock exchanges. An example is Laos, a tiny country hoping to open two companies to global investors. It is landlocked but has fast flowing rivers with hydro-power potential. Investors have been turning to such markets hoping for higher returns than have been available in US on average the last couple of years. While the average return in frontier markets was an average 20% in 2010, it’s the example of plus 88% earned in Sri Lanka last year that excites the investor.
While such possibilities are exciting it still needs to be remembered that frontier markets are extremely risky investments and not added to your portfolio until you have accumulated several hundred thousand dollars of capital and know you can tolerate the risk of losing the capital committed to them and able to wait through years of poor return before rewards come in. These markets have less transparency and established rules than US markets. The careful investor will commit only a small per cent of his capital to this investment area and remember it is a high risk diversification.
You can invest in frontier markets via mutual funds and exchange traded funds.
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