History: The Past is Prologue
Over the past twenty years we have seen, what are now called, “Emerging Markets” travel down the path of the frontier, making incredible strides into the future and giving their investors ample gains. The frontier markets of today will follow in the successful path of their predecessors. This can be measured by the wonderful progress in the countries that have been part of the Capital International Perspective (now Morgan Stanley Capital International, or MSCI) Emerging Markets Index since 1987.
Examples of these emerging market successes are: the governments of South Korea and Taiwan have progressed towards strong democracies, China and Eastern Europe have embraced capitalism… and Starbucks has arrived in Shanghai. In fact, it can be said that during the last twenty years, China has experienced the greatest movement of people out of poverty in the history of mankind. Meanwhile, emerging stock markets have delivered strong performance (despite suffering banking and currency crises in the 1990s).
Looking at frontier markets, we believe they will follow this path, because it is easier to follow than to lead. The examples have been set, and the principles of rule of law and incentives are understood. As Mark Twain is reported to have said, “History doesn't repeat, but it rhymes”. We believe this will describe the path of frontier countries and their stock markets in the years ahead.