Investing in Frontier Markets: Opportunity, Risk and Role in an Investment Portfolio

CHAPTER 6

Past Emerging Market Upheavals and What They Can Teach Frontier Market Investors

In life, love and career, earlier traumas can impact on present decisions and thinking—perhaps without any direct-line connection between the past and the decision in question. The status of frontier markets as a subset of emerging markets may mean that past upheavals color present investment decisions. If our thesis is correct—that frontier market investments, given time, will yield solid returns—then the tendency to fear the repetition of history could prove costly. In order to avoid the outcome of opportunity costs, we must look at each frontier market investment possibility with an open mind.

This is important because behavioral finance experts include memory on the list of factors that influence decision making in investing as well as in other areas of life. However, allowing memories of bygone traumas to influence decision making in the present can become costly in investing as well as in other areas of life.

Five well-known emerging and frontier market crises may cloud some investors' views of emerging markets and frontier markets, both in general and with respect to the five regions involved: Argentina, Mexico, the Asian economies (including Japan), Russia and Brazil.

Clarifying one's perspective in the investing process means—in a sense—overruling the old memory in favor of more relevant facts in the present. That strategy certainly applies to emerging and frontier markets. “Emerging ...