Uncertainty Remains for Europe-Domiciled Frontier Market Funds
September 7, 2021 — London
Frontier markets hard hit by COVID-19, but investor demand has started to pick up
Investor demand for Europe-domiciled funds that invest in frontier markets has improved in 2021, but the outlook remains mixed, according to the latest issue of The Cerulli Edge―Global Edition.
Frontier markets presented opportunities for investors pre-pandemic, but the risks associated with investing in these markets are considerable, contributing to reduced investment appetite last year, says Cerulli Associates.
“The existing risks pre-pandemic combined with the uncertainty surrounding COVID-19 did not bode well for frontier market investment demand last year. Given the uncertainty around the pandemic, investors were searching for safer, less risky, investments in developed markets,” according to Fabrizio Zumbo, Cerulli’s associate director of European asset and wealth management research.
“Although flows into Europe-domiciled funds investing in frontier markets moved back to the positive territory in the first six months of 2021, the outlook for frontier markets remains mixed, as investors are still concerned about the continuing disruption brought by the COVID-19 pandemic in these markets,” added Zumbo.
Investors are apprehensive about the impact of coronavirus on the economies of frontier markets, where the rollout of vaccines is slow. Tourism, a key contributor to the GDP of many frontier markets, has been hit hard by restrictions on international travel. Furthermore, lockdowns have massively disrupted supply chains, which has affected companies in frontier markets and eroded investor appetite. Concerns over slow vaccine rollouts and continued lockdowns will persist among investors in frontier market funds for the foreseeable future, says Cerulli.
Cerulli research indicates that asset managers have not made significant changes to how and where they are investing in frontier markets. Managers remain committed to investing in companies that focus on themes such as financial inclusion, healthcare, and digital. Investors are particularly interested in African frontier markets due to the continent’s underdeveloped infrastructure and growing middle class.
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