The benefit of research is to go where other people aren’t. And the big emerging countries attract a lot of attention today. Small emerging countries in frontier markets are very less well traveled and that leaves us room to find stocks that others aren’t following.

When we think of the frontier markets today, we see in them similar opportunities that the large emerging markets presented 20 years ago.

Frontier markets could be found in every single region of the world. In Latin America, Argentina, would be one such. In Europe, Croatia. And there are frontier countries throughout Asia, like Bangladesh, Sri Lanka. These are markets that others aren’t really looking at but our research is uncovering great ideas there.

There’s a lot to like about investing in frontier markets. First of all, they are some of the fastest growing countries in the world today. And that GDP growth does tend to translate into increased earnings growth.

Frontier countries grow rapidly because they’re at a stage of their development where they receive a lot of capital to improve the productivity in the market. The biggest factor in productivity growth is infrastructure improvement.

Imagine what it takes to sell ice cream in Africa. You need a lot of things to get that to work, right? You need a refrigerated truck, you need roads that allow that ice cream to be delivered, and then ultimately you need refrigeration in retail. And each of those three things actually represents an area that we can invest in, with infrastructure frankly being the most important.

So, China’s a great example of how infrastructure drive growths. 10, 15 years ago China’s infrastructure was still quite poor. Today, China has some of the best highways, it has some of the best railroads, and in fact it’s actually a market leader in the high-speed trains. When we look at many of the frontier markets today, they still have poor infrastructure. If we look, for instance, in Egypt, the railroads are in pretty poor condition. And as a result, there is a tremendous opportunity to invest in these, uh, in the infrastructure and drive the productivity growth and create lots of businesses which will thrive on better infrastructure.

One of the factors that’s contributing to earnings growth is consumers having access to capital and then wanting to spend it. So, most shopping around the world today, and especially in these countries, is still conducted in street side stalls.

And the consumer, as their incomes rise, shift to the convenience, safety, comfort, and air-conditioning of modern supermarkets and, uh, modern malls. And that shift, creates not a tremendous long-term growth opportunities in the malls and the ... And the supermarkets, but also in host of adjacent industries such as packaged goods, banking, and entertainment. ESG research is important. By focusing on your environmental, social, and governance issues, we better understand whether the management are focused on a long health of the business. And as a result, we get a greater comfort level that we as minority shareholders have a long-term protection in that company.

So what we’re really excited about is that we continue to find places to invest around the globe, quite literally, that are undiscovered. The frontier markets require a deep bench of research and they require commitment. They require an analyst team willing to travel most of the year to uncover these opportunities. And I’m really proud that we’ve been able to offer opportunities in the frontier because we see tremendous growth there at interesting valuations.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

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