The lure of potentially high returns at lower prices than the big emerging markets is attracting value-seeking institutional investors to smaller “frontier” markets such as Bangladesh, Pakistan, Angola and Mongolia.
“To me, China and Hong Kong are expensive, but Pakistan is not, nor is Bangladesh,” says Jonathan Auerbach, co-founder and managing director of Auerbach Grayson, a New York-based agency broker serving the international needs of US institutional investors in 107 countries. “Emerging markets and the frontier world will continue to grow faster than the developed Western economies in 2008,” he predicts. The problem for institutional investors interested in a market such as Mongolia, he says, is that they cannot invest in large amounts because of the lack of liquidity.
“Portfolio flows to emerging markets are increasing,” Auerbach says. “The bias is toward buying, not selling.” Commodity-exporting countries in the Middle East and Africa are booming, and capital markets in these regions are expanding, he says. “Business is very strong in Nigeria,” he says. “Angola—one of the few countries in southern Africa that doesn’t have a stock exchange—will be opening one this year.”