Investment portfolio diversification is the best way to increase your chances of maximizing potential returns, as well as lowering risk. Consider: do you only invest in the same kinds of companies, businesses, or products? If there is a market correction or appreciable drop in stock market prices, your portfolio will become heavily devalued.
You may want to consider investing in products and commodities supplied by frontier markets. Frontier markets provide the raw materials for products the world uses today and possibly tomorrow. Frontier markets are fraught with risk, as is all investing. Yet, all investing risk is mitigated by research and diversification.
What Is a Frontier Market?
A developing country that is slowly developing an economy, infrastructure and business market that can compete with developed and emerging markets is a frontier market. Frontier markets might have one resource to leverage for business transacting in international markets. Like precious metals, oil or energy. A frontier market might not even have a domestic stock market or business infrastructure.
The United States, Canada, Australia, Belgium, Denmark, France, and Germany are examples of developed market countries. Brazil, Hungary, Mexico, Morocco, South Africa, and Zambia are examples of emerging market countries. Argentina, Bahrain, Bangladesh, Burkina Faso, Ivory Coast, Lithuania, Kazakhstan, Morocco, Niger, Nigeria, Romania, Serbia, Sri Lanka, Tunisia, and Vietnam, among others, are frontier market countries.
Frontier Market Products
Even though you may not know about frontier markets, you may know some frontier market products already. You may have already bought products from frontier market countries and not even known it. Even though the concept of a frontier market may not be widely known, their impact on world markets are tangible.
Do you remember the market hype around the superfood protein quinoa? Quinoa is a food that has existed for thousands of years but experienced a marketing boom in Western countries from 2011 until 2014. Quinoa is made in frontier market countries like Bolivia and Peru.
In 2000, a pound of quinoa sold for less than a quarter. In 2011, that same pound of quinoa sold for $4. Annual quinoa production in Peru surged from about 1,600 tons to over 114,000 tons during that boom period.
However, that means nothing to you as an investor unless you invested in quinoa prior to its boom years on the international market.
That is the thing about frontier markets. These countries have products and national resources that may supply the next international business demand.
Cobalt is a precious metal that is vital in the production of rechargeable lithium ion batteries. One of the largest markets of the future will be electric cars with lithium ion batteries. More than two-thirds of the world’s supply of cobalt is mined in the Democratic Republic of Congo.
Investing in frontier markets can be risky. Frontier markets are developing countries. They can be unstable politically, poverty stricken or have weak economic infrastructures. Yet, frontier markets routinely do business with developed and emerging market countries. Consult experts from frontier market countries you may invest in. Talk to lawyers. Don’t invest on a whim. Additionally, don’t discount the potential in profiting from frontier market investing.
Have you invested in frontier markets? Share your experience in the comments below!
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