Since the US subprime mortgage sector crashed in 2008, global financial markets have experienced several challenges. As we await much-anticipated news on US interest rates, this has not been the perfect scenario for frontier markets. However, investors are now more appreciative of the long-term potential of these markets, with particular interest in countries such as Bangladesh, Vietnam, and Sri Lanka.

 

Definition of a frontier market

 

Frontier markets are a subset of emerging markets that tend to carry a higher risk/reward ratio that is not suitable for all investors. On a more specific level, these markets are characterised by less developed financial sectors and lower liquidity compared to their emerging market counterparts. Consequently, there is significant room for growth and improvement, and the introduction of digital technology has been and continues to be a game changer.

 

Importance of the APAC region

 

There is particular interest in frontier markets in the APAC region because of the strength of the underlying economy and the significant contribution to global GDP growth. In recent years, we've also seen substantial changes to country demographics, which have attracted outside interest and investment. There are two specific areas of interest here: growth in the employment sectors and the expansion of the middle classes, which will support future consumer spending.

 

Overview of APAC Frontier Markets

 

When looking at frontier markets, addressing the enhanced risk and, for many in the APAC region, the enhanced potential for the future is essential. There are five robust frontier markets in the APAC region, which include:-

 

Bangladesh

 

This country has a notable and extremely robust garment industry that has attracted international investment. While this area will always be prominent in the economy, we have seen significant diversification and growth in other areas.

 

Vietnam

 

Seen by many as one of the leading frontier markets in the APAC region, historically, the country has been known for manufacturing and an export-orientated economy. In more recent times, we have seen an expansion of digital banking, making banking more accessible, which is benefiting the broader economy.

 

Sri Lanka

 

This country is still recovering from decades of civil conflict, but recently, we have seen significant growth in tourism and agriculture. As with many frontier markets, attention-grabbing headlines can often mask the underlying prospects for the broader economy.

 

Pakistan

 

In recent times, Pakistan has encountered several economic challenges, resulting in yet another IMF bailout. Although the situation is volatile and challenging at the moment, assuming the economy is brought back under control, the country has much to offer in terms of the technology and textile industries. When will Pakistan fulfil its potential?

 

Mongolia

 

It is no secret that Mongolia is rich in copper, gold, silver, and coal deposits. It is also no secret that the country has a serious poverty problem, which has improved over the last decade, but there is still much to do. Changes on the political front are encouraging, with potential for enhancements in democracy, which should eventually reduce the risk and attract more overseas investment.

 

Summary

 

In many ways, the APAC region as a whole is well positioned to support frontier markets such as Bangladesh, Vietnam, Sri Lanka, Pakistan, and Mongolia. This area of the world has the fastest-growing economy and the greatest contribution to global GDP. There are obviously enhanced risks with frontier makets, and it is important that you take advice from your financial adviser.

 

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