Frontier markets hold out the promise of extra returns, as if there is a proportional connection between risks taken and achieved returns.
Information. Short of having a permanent base in the market, it is far more difficult for investors to find out exactly what is happening on the ground, in a company or the wider market. There may not be the volume or regularity of financial information available, and it may not be in an immediately useable format. Keeping on top of what is happening in Frontier markets is notoriously challenging.
Support networks. From pre-trading and execution to custody, processes are likely to be different from those at home. It is not always the case that they are less advanced – some new stock exchanges, set up with the most modern systems, are technically superior to those in established markets. But they still need to talk to each other.
Those who invest in Frontier markets will say none of these factors undermine the central case for investing first, at a very good price, in a fast growing market of the future. They accept that volatility and inefficiency are part of the ride, but the thrill of superior long term returns is worth it. Engaging these challenges, say the sector veterans, is more about the character and style of the investor than the target market.