Via What Investment, a view on frontier markets from BlackRock:

Sam Vecht, director and portfolio manager at investment firm BlackRock, has hotly tipped frontier markets to outperform emerging markets.

According to Vecht, while emerging markets are still interesting, they are no longer delivering the returns seen in recent years, as reflected in the MSCI China index, which is now below 1994 levels.

The growth potential in frontier markets is an attractive feature for Vecht, with nine out of ten of the fastest growing economies of 2011 falling within this sector, as is their ability to play an increasing role in global manufacturing.

Vecht said, ‘We think now is the right time to consider frontier markets. Countries like Bangladesh and Vietnam have long term growth drivers and are also becoming much more competitive on a global scale.’

He added, ‘Taiwanese manufacturers are looking to move their production to countries like Vietnam where the minimum wage in, Hanoi, is $95 a month. By contrast, in China’s cheapest province for manufacturing, Jiangxi, wages are approximately $137 per month.’

Undervaluation in these markets is also key for Vecht: ‘What really matters to investors are returns. This brings into focus what is most important, yet sometimes overlooked – valuation.’

However, the risk that frontier markets present remains an issue. Vecht admitted, ‘People don’t always tell the truth in [frontier] markets, in fact they often don’t tell the truth in these markets.’

BlackRock tackles this through personal meetings with all potential frontier investments, though it does not embed managers as Vecht believes this can lead to an inability to see ’the wood for the trees’ when making decisions.

Speaking at an Association of Investment Companies event in London, Vecht was also keen to point out that frontier markets are in the exact same position as emerging markets were in 1991 in terms of market capitalization, which could be an indicator of a similar future growth spurt.

BlackRock is not alone in its assessment. Richard Titherington, manager at JP Morgan concurred, ‘“Beyond BRICs” is potentially the next big theme in emerging markets investing. Africa, in particular, and small cap stocks fit the desired early-stage growth profile, while urbanisation and consumption are two of the most stable and predictable trends in emerging and frontier markets.’