Understanding Frontier Markets With Investor Marko Dimitrijevic

The word “frontier” brings a specific thing to mind for everybody: space; the wild west; adventure.

But for Volta Global’s Founder and Chairman, Marko Dimitrijevic, “frontier” means a virtually untapped investment opportunity in the form of frontier markets.

Dimitrijevic is so convinced that frontier markets are an investment option that more should consider, he wrote a book about it: Frontier Investor: How to Prosper in the Next Emerging Markets. It’s been lauded by such notables as Michael Spence, a Nobel Prize Winner in Economics, who hailed it as “brilliant” and “a tour de force.”

What is a frontier market? Marko Dimitrijevic explains that the term, first introduced in 1992, applies to markets in primarily developing countries, which are smaller, less liquid, and as they stabilize and grow are almost emerging markets. Dimitrijevic is also quick to point out two key things about frontier markets. First, they are not the same as emerging markets, and second, they are the emerging markets of tomorrow. Frontier Markets are basically emerging Emerging Markets

“Look at the recent economic growth of the BRIC countries, (Brazil, Russia, India and China),” says Marko Dimitrijevic. “None of these markets, which are now classified as emerging, were solid or competitive as recently as 20 years ago. But, by 2014, the economies of emerging markets accounted for approximately one-third of global GDP and BRIC was the bulk of that number.”

A case in point, according to Dimitrijevic, is that in the 1960s, the company Samsung (which was founded in South Korean in 1938) entered the electronics industry. “This was only seven years after the end of the Korean War,” explains Marko Dimitrijevic. “At that time, South Korea would definitely have been seen as a risky market by many, so this an excellent example of what was then a frontier market.”

In 1966 South Korea had an economy smaller than the Democratic Republic of the Congo. Now it is 40 times larger than DR Congo’s and ranks as the thirteenth-largest economy in the world.

There are, naturally, risks associated with frontier markets. The political situation in a developing country can turn on a dime, and the return on, or even of, capital can evaporate. But good research, including boots-on-the-ground, in country assessments, can mitigate those risks.

Marko Dimitrijevic, who has traveled the world and has invested in more than 150 countries, including 120 emerging markets, can’t emphasize enough the need for investors to put themselves, or trusted sources, directly in front of the investment opportunity, in country.

Why go to all the trouble? Because of the potential of frontier markets. According to Morningstar, on average, U.S. mutual fund investors (excluding institutions) hold only 15.6 percent of their total equity allocation in overseas stocks. The bulk of the investment, 9.8 percent, is in developed markets. Emerging markets account for 5.8 percent.

And Frontier markets? Ignored.

Which brings Dimitrijevic back to his premise. There is huge, untapped, potential in frontier markets and it’s time for investors to recognize that, and dive into the adventure.