With emerging markets seeing high levels of growth in 2010, some fund managers are looking further afield for new growth stories, while commodities look set to remain in the spotlight. Head of savings and investment, Nick Scarrett, looks at the investment year ahead for frontier markets and the outlook for oil and metals.
Commodity funds have had a good number of years and in 2010 investment headlines have been made with huge rises in the value of gold, oil and copper. Many economists see commodity prices gaining further ground in 2011 as above average global GDP bolsters demand, led by the emerging market economies.
Emerging market economies are particularly commodity-intensive and China and India have 2011 GDP predictions of 9.0% and 8.7% respectively. Therefore the combination of growing demand and finite resources should lift prices further. However any faltering in the emerging market economies, or an increased threat of a global double dip recession, however unlikely, could have a negative impact on prices.
Emerging Markets and Frontier Markets
The success of the emerging markets sector over the past five years is predicted to continue into 2011 and beyond, especially if you read the predictions for global economic growth in coming years.
As the BRIC countries – Brazil, Russia, India and China – and other leading emerging markets become ever more established some fund managers are looking further afield for the next wave of global growth.
This next wave of growth is predicted to come from countries such as Argentina, Kuwait, Oman, Kenya and Nigeria.
Fund Manager Blackrock is predicting a great 2011 for Frontier Markets, which include nine of the top ten fastest economies in the world. BlackRock recently launched a frontier markets investment trust.
Research by Swiss & Global Asset Management predicts annual growth of over 11% per annum over the next ten years and points to a low correlation with both developed and emerging market economies.
There is definitely potential for rises in frontier markets with falling share valuations since 2008, low debt burden, and favourable demographics. However, the sector is not for the faint hearted with low share liquidity, currency risk and potential political instability.
While investor opportunities in frontier markets are likely to grow as markets become more established, some emerging market funds may provide exposure to less established emerging or frontier markets, such as Argentina. The Neptune Africa fund invests in both Kenya and Nigeria, with the majority of its holdings in South Africa.
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