Where to find value in frontier markets

So-called frontier markets account for about a quarter of the world’s population today, but only 5% of global GDP. A little over half of the world’s eight billion people are in emerging economies and about 12% of the world’s population lives in developed countries.

The US and North America as a whole account for only about 4.7% of the world’s population. But the US stock market makes up around 73% of the MSCI World index. And, while the World Federation of Exchanges tracks about 58,200 listed companies worldwide, the Magnificent Seven technology stocks (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla) account for about 22% of global equity benchmarks.

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One of the biggest success stories recently has been Vietnam. Its economy has been on a tear over the past five years as the trade war between China and the US has drawn in producers attracted by the country’s low-cost labour and healthy infrastructure investment. GDP growth in the first nine months of the year hit 9%. To sustain growth, the government aims to invest $1.5 trillion in infrastructure by the end of the decade. Index providers didn’t allow it to join emerging-market indices until the country pushed through major trade-settlement reforms and opened its markets to foreign investors. But on 21 September 2026, Vietnam officially became an emerging market when 27 Vietnamese stocks entered the FTSE Global All Cap index, with full integration phased in over 12 months.

Vietnam’s growth and graduation underline one of the key trends that is set to shape the global economy over the next decade. As the Western world ages, emerging and frontier markets will play a crucial role in global economic expansion, contributing about 65% of global economic growth by 2035, according to S&P Global. Notably, frontier markets, particularly those in sub-Saharan Africa, will play a prominent role in this growth due to their favourable demographics.

The term “frontier markets” was coined by the International Finance Corporation, the World Bank Group’s private-sector arm, in the early 1990s, to serve as shorthand for the next generation of emerging markets. What constitutes a frontier market varies by the bank or NGO conducting the research, but generally, markets in this category have meaningful but still limited access to international financial markets and GDP per capita around one-third of the median level of emerging markets. That’s not to say all frontier markets are low-income countries. Barbados and Bahrain are both classed as frontier markets by rating agency S&P Global and have estimated GDP per capita figures of around $30,000 (about 15% below Spain and Japan).

At the end of 2025, there were 56 frontier markets, up from 39 in 2012. The list has added previously unclassified countries as they’ve issued debt or made efforts to unlock capital markets. Four frontier markets (Bulgaria, Costa Rica, Panama and Romania) have become emerging markets since 2012 by attaining high-income status, but as the World Bank notes, only Vietnam has actually graduated from frontier market to developing market in the eyes of equity-index providers.

Africa holds about 30% of the world’s mineral reserves, 8% of its natural gas and 12% of its oil reserves. It holds 40% of the world’s gold and the largest reserves of cobalt, platinum and uranium, all key to the global energy transition, not to mention 60% of the world’s uncultivated arable land. However, the continent has never really controlled its own resources. Money has flowed in to develop mines, then flowed right back out to shareholders in London and New York. Nigeria is a great case study. The US Energy Information Administration (EIA) notes that the country was one of Africa’s top crude-oil producers in the 2000s, producing two million barrels a day. However, it lacked the refining capacity to turn this into usable fuel. Nigeria exported oil and then imported it back at market rates, losing wealth and exposing consumers to global oil-market volatility.

Africa’s richest person, Aliko Dangote, has changed all that with his 700,000-barrel-a-day oil refinery in Nigeria. The $20 billion project keeps oil in Nigeria and lets it export refined products to other countries (its jet-fuel exports helped ease a global crisis following the closure of the Strait of Hormuz). The continent’s largest oil refinery is listing its shares across Africa (on exchanges in Nigeria and Botswana), seeking to raise $1.6 billion from investors, with demand exceeding the offer by three or four times.

Dangote is looking to replicate this with a new refinery in Lamu, a coastal town in southeastern Kenya. Construction on the $16 billion refinery began in September. Tanzanian billionaire Mohammed Dewji has said he intends to invest $100 million in the project. Others are also moving into the region. Canada’s Zimar Group signed a deal in August with Niger to build a $1.9 billion oil refinery and a petrochemical complex. France’s TotalEnergies SE and its partners say they plan to invest $10 billion in Angola’s oil sector over the next five years. China alone committed $33.5 billion to the region in the first half of 2026 under its Belt and Road Initiative.

Another example is fertiliser. It’s no help having 60% of the world’s uncultivated arable land if you don’t have fertiliser to grow crops on it. The African Development Bank (AfDB) estimates that 80% of the fertiliser used on the continent is imported. Despite $15 billion invested in recent years to boost production, it’s still not enough. Governments have now committed to tripling domestic fertiliser production and distribution by 2034.

“Financial inclusion” is also a big part of the story. In many frontier markets, the vast majority of the population has historically been excluded from the banking system. That’s changing rapidly with the adoption of financial technologies (fintech). Sidani cites the example of GCash in the Philippines. The company, which recently floated on the stock exchange with a $7 billion valuation, has become the country’s go-to banking app. “Around 70% of the population in the Philippines has an e-wallet compared with around 40% who have deposits with banks,” he explains.

Ahmed Awny, head of investments and portfolio manager of the Templeton Frontier Market Strategy, points to Safaricom and Vodafone, which launched M-Pesa, a mobile-phone-based financial services and money-transfer platform, in 2007 to piggyback on text-message technology for sending money. Nearly 20 years later, the technology has revolutionised financial services in Africa, and peers have sprung up all over the world: dLocal in Latin America; GCash in the Philippines; M-Pesa in Kenya; MoMo in Vietnam; Kaspi in Kazakhstan; and Airtel across Africa. The adoption of this technology has been as fast in frontier as in emerging and developed markets, if not even faster, because it has been taken up by younger generations, who are more aspirational, quick to adapt and to learn, says Awny.

Consumers in frontier markets are also leapfrogging their developed- and emerging-market peers in the rollout of AI. Cavan Osborne, a portfolio manager for Old Mutual in South Africa, notes that for this reason one of the most interesting sectors in Africa right now is telecoms. Five years ago, consumers sent messages and searched online using only a few bits of information per request; now, with AI search and AI tools, each request requires many more bits of data.

Sub-Saharan Africa is projected to see the fastest global 5G subscription growth, rising from roughly 30 million in 2025 to 370 million by 2031, according to the Ericsson Mobility Report. Mobile devices account for the vast majority of web traffic across African networks, driven by lower costs and a lack of fixed-line desktop infrastructure. In Nigeria, which has the most mobile users on the continent at more than 100 million, monthly mobile-data consumption surged from about 518,000 terabytes in early 2023 to more than 1.23 million terabytes by November 2025, an increase of roughly 140% in less than three years.

(LSE: AMC), the largest London initial public offering (IPO) since 2021, is one success story, says Osborne. The fintech was spun off from FTSE 100 firm Airtel Africa (LSE: AAF), one of the larger telecoms groups operating in Africa (others are South Africa’s MTN, Vodafone, Orange and Dubai Etisalat). Osborne says it is growing by around 30% per year and most of the growth comes from “fees on payments, driven by new users as people switch to smartphones”. The mobile money business is “very capital light” and, despite growing at about 25%, pays out around 80%-90% of its earnings as dividends.

Osborne also highlights the opportunity in Africa’s banking sector. “The [African] banks generally are quite simple,” he explains. “A lot of them just gather deposits and put them into government treasuries…where you could be getting 10%, 15%, 20% yields.” With a low cost base thanks to the rollout of technology and a lack of a need for a vast branch network, most lenders are quite profitable. From the bank’s perspective, risk is also limited because the currency is hedged and default risk is generally low. That has helped make the banking sector one of Africa’s best performers.

Such embedded structural hedges are vital for managing risk, says Awny. Take Vietnamese exporters. Vietnam’s currency has been mildly depreciating over time, but for exporters, with a Vietnamese Dong-denominated cost base and exporting into a US dollar market, this has been a structural tailwind; or take Bank of Georgia, a subsidiary of Lion Finance (LSE: BGEO), which, like its peers in Africa, can adjust loan pricing to offset political and economic uncertainty.

Kazakhstan, home to world-class fintech platform Kaspi (Nasdaq: KSPI). Kaspi has 13 million active users in Kazakhstan out of a total population of around 18 million-19 million. The UAE is another example. It is technically an emerging market, but Sidani believes it’s being “disregarded by the big global funds” and offers exposure to “multiple themes on the liberalisation and transformation of the economy”, including data centres and AI infrastructure.

Ten to 20 years ago, investing in frontier markets required a lot of legwork. Investors had to be on the ground, speak the language and be willing to do the work to find the best opportunities. That’s no longer the case. Awny notes that many of these businesses are operated by managers of comparable quality to peers in New York or London. CEOs and their teams have also “cracked the manual on how to bring the equity story up to the level of the emerging markets”. “Today, if I take you to a company meeting in Ho Chi Minh City or in Hanoi in Vietnam, you will have the same level of spoken English, same level of detailed PDF presentation, as the one that you would have from Alibaba or from any company that you sit in front of in India or some of the developed markets,” says Awny. “The same is the case with Kenyan banks, Peru and Colombia, Morocco and Oman.”

Because operating in less efficient, less financialised economies adds friction, these companies also tend to have stronger balance sheets and higher returns, Awny notes. “Credit is not that easy; credit is costly,” he says, meaning most businesses must rely on internally generated cash flows. As a result, returns on equity and capital employed can be 300 or 400 basis points higher than the typical emerging-market company.

Much of the opportunity in frontier markets stems from their inefficiency and under-reporting compared with developed or emerging markets. But that opportunity also adds risk. Stocks in frontier markets are typically much less liquid than those in developed or even emerging markets. And while it has become easier to find information on businesses listed in these markets, transparency for the average investor is still poor. That’s without considering trading restrictions. Hargreaves Lansdown and Interactive Investor, two of the UK’s biggest trading platforms, don’t offer direct share trading on any frontier markets, and only offer two or three emerging markets. Many of these countries themselves also place restrictions on international investors.

For investors who want to invest directly, London offers a handful of names previously mentioned, such as Lion Finance and Airtel. Dangote Oil Refinery is pursuing a secondary listing in London, while Dangote Cement (the billionaire’s first business) has appointed Goldman Sachs and UBS to offer about 10% of its shares in London via a secondary listing. Data from the LSE shows there are 110 African companies listed in London with a combined market value of $200 billion, but these include the likes of Old Mutual and Investec, both of which are based in South Africa. They offer frontier exposure, but you’re also taking on extra risk. The National Investment Fund of the Republic of Uzbekistan (UzNIF) also listed in London this year.

(LSE: BRFI), which specialises in frontier markets and smaller emerging markets, excluding the largest markets by capitalisation (that is, Taiwan, South Korea, China, India, Brazil, Mexico and South Africa). Managers Sam Vecht and Emily Fletcher analyse macroeconomic cycles across the countries, then position the portfolio according to where they see the best stock opportunities.

Andrieux recommends combining frontier with smaller emerging markets, which are often underrepresented in emerging-market indices and funds. Redwheel Next Generation Emerging Markets, managed by James Johnstone and Victor Erch, is one option. There’s also the Templeton Frontier Markets Fund, managed by Ahmed Awny and Bassel Khatoun, and the Schroder International Selection Fund Frontier Markets Equity, managed by Rami Sidani.

Neither the quality of management nor the quality of these companies’ balance sheets is reflected in valuations. At the end of September, the MSCI World index traded at a trailing 12-month price/earnings ratio of 22.7, a price-to-book-value ratio of 4.1 and a yield of 1.5%. By comparison, the Templon Frontier’s portfolio is trading at a book ratio of 2.1, and a 12-month trailing P/E of 10.2. Schroder Frontiers has a valuation of 9.9 times earnings. According to Morningstar, Redwheel’s fund has the cheapest portfolio, trading at just 8.3 times historic earnings.