Navigating Turbulent Markets: Why Frontier Economies Are Gaining Traction
As global tensions escalate and trade policies shift, investors are seeking refuge in unexpected places. The new era of unpredictability has prompted a shift towards frontier markets, which are relatively insulated from the whims of US President Donald Trump’s trade policies.
A Safe Haven in Uncertain Times
Frontier markets, often smaller developing economies in Africa, Eastern Europe, Asia, and Latin America, are not exactly a safe bet. However, investors argue that they are strong investment destinations this year due to their relative immunity to Trump’s tariff threats and policy shifts. Economies like Serbia boast sturdy growth, while Ghana, Zambia, and Sri Lanka have emerged from debt default, allowing them to focus on reforms and growth.
Diversification Powerhouse
According to Thierry Larose, an emerging market portfolio manager with Vontobel, frontier markets are an “extremely powerful engine of diversification.” They have their own unique risks, but are less affected by the risk-on risk-off dynamics that impact mainstream emerging markets.
High-Yield Opportunities
In a riskier global climate, investors often flock to safe-haven assets like US Treasuries, gold, or German government bonds. However, some of the riskiest debt bets, such as Argentine, Lebanese, Ukrainian, and Ecuadorean international bonds, outperformed spectacularly last year. Many expect similar idiosyncratic stories to drive returns again over 2025.
Africa and Beyond
Investors are eyeing multiple countries, including Egypt, Nigeria, and the Dominican Republic, as attractive targets. Zambia, Ghana, and Sri Lanka, which recently emerged from debt restructuring deals, are also attractive bets this year. Turkey and South Africa, larger non-frontier emerging economies, are also showing promise.
Bright Spots in Emerging Markets
Turkey has become a popular play for foreign cash since its return to orthodox fiscal policy in 2023, and recently embarked on a rate-cutting cycle. South Africa, less reliant on exporting to the United States, could benefit from falling oil prices and its mix of commodity exports.
Cautious Optimism
While frontier markets offer a promising haven, not all emerging economies are immune to the risks. JPMorgan downgraded its recommendation on Panama’s bonds after Trump’s threat to “take back” the Panama canal. Silver-lining stories from the previous Trump administration might be less lucky this time, especially those who benefited from diverted Chinese trade.
As investors navigate these turbulent markets, one thing is clear: frontier economies are gaining traction as a safe haven from the unpredictable global landscape.
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