Bombs over Baghdad…
That’s what I talked about yesterday… investment opportunities in dangerous and far-off places that most people haven’t even heard of… or wouldn’t step foot in.
And right now, 99.9% of investors overlook the Iraqi stock market even though it’s one of the cheapest in the world.
But Iraq isn’t the only “dangerous” market worth a look.
Recently, I attended an exclusive investment conference in South Carolina. While there, I saw a presentation from RWC Partners.
RWC Partners specializes in investing in emerging and frontier markets.
Emerging markets are in countries like China and Brazil. Some call them the Wild West of investing.
Frontier markets are even more wild and unregulated.
China looks tame compared to places like Argentina, which has debt defaults on average every 28 years… Bangladesh, which had a military coup just 10 years ago… and Kazakhstan, a former Soviet republic run by a dictator.
Most people stay out of these markets because of fear. We scour them to uncover profitable investments that haven’t become mainstream yet.
You see, there are a lot of money-making opportunities in frontier markets. That’s why you should allocate a small part of your portfolio to them.
If you want to diversify your assets with a few foreign stocks, here’s why you should consider frontier markets…
Big Gains on the Frontier
James Johnstone manages the emerging and frontier markets team at RWC Partners. The firm has an impressive history of finding great companies in these markets.
Recently, RWC bought a Bangladeshi company that makes Olympic biscuits.
The company infuses its biscuits with protein and vitamins. Everyone in Bangladesh who can afford them, eats them. He’s made 500% returns in 18 months.
In 2002, RWC bought the largest bank in Indonesia. That investment is up 3,500% in 15 years.
James still sees a lot of opportunity in frontier markets. Here’s why…
Today, over half the world lives in these countries. And by 2020, almost 25% of the world’s GDP will come from them.
Despite that rapid growth, frontier markets only account for 3% of the world’s stock market value. That’s a huge opportunity…
If you believe that frontier markets should be valued the same as emerging and developed markets (which I do), they need to rise 800% in value.
That’s before you even factor in how fast these markets are growing.
Why Frontier Markets Are a Good Value
James uses the ratio between a country’s market cap and GDP to find deals in foreign markets. (Not coincidentally, Warren Buffett uses this measure for the same reason.)
The United States has a market cap-to-GDP ratio of 130%. Many developed nations trade over 100%.
Many frontier markets sell at a ratio of 20%. That’s five times less than developed nations.
But we don’t like frontier markets just because they’re extremely cheap. We like them because they’re extremely cheap and growing.
James told me these markets are averaging 9% annual GDP growth.
Developed economies can only dream of that kind of growth. Yearly growth in the United States is 3.5%. And in China, it’s only 7% per year.
The type of growth we’re seeing in frontier markets gives companies room to expand. And in turn, more opportunities to make profits.
In a normal world, frontier markets would be a lot more expensive than developed markets.
They’re growing much faster and have more upside potential. But many investors view them as a risky gamble.
In fact, by adding frontier markets to your portfolio, you can make it more resilient.
Many Americans are heavily invested in U.S. stocks. That presents a problem… When the U.S. economy slows down, your portfolio takes a big hit.
That’s why you need to be diversified. Most of these frontier markets are not tied to the U.S. economy. So, they wouldn’t be affected by a slowdown here.
This kind of diversity protects your wealth.
Where to Look
Some of James’ favorite plays right now are the Philippines, Bangladesh, Vietnam, Romania, Kazakhstan, Rwanda, and Argentina.
The easiest way to buy into these is through the Guggenheim Frontier Markets (FRN) exchange-traded fund (ETF).
If you want to buy individual countries, check out ETFdb.com. You can search by country to see which ETF has the most exposure to the country you’re interested in.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
P.S. Buying frontier markets can add a layer of diversity that bulletproofs your portfolio. Yet many people still fear these money-making opportunities. Tell us what’s keeping you out of these markets—or if you’re ready to take the plunge into them—right here.
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