Stock picking in the forgotten 40

The world’s smallest markets are widely neglected by investors. Emily Fletcher, Co-Manager of the BlackRock Frontiers Investment Trust plc, asks whether a change of market environment might bring about a new era for these unloved gems.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The world’s smaller economies have much to offer. They house 30% of the world’s population and about 10% of the world’s GDP. Many of the dominant global trends – rapid urbanisation, digitalisation, logistics – are magnified in these markets, creating significant opportunities for local companies. Yet they remain unloved by global investors. Why?

At a time when environmental, social and governance considerations are at the forefront of investors’ minds, many of these smaller markets – home to 3bn of the world’s population – have been starved of capital. We believe investors may be deterred by a number of myths about these forgotten markets.


There is a perception that investment in these countries is a bet on a narrow range of sectors – banks, brewers and commodity companies. Certainly, these feature in the BlackRock Frontiers Investment Trust, but they sit alongside software companies in Vietnam, hospital operators in Southeast Asia, and airlines in Central America.

Equally, a bank in Kazakhstan is not the same as a bank in the US. While developed market banks are tied into the same system, banks within frontier markets will often march to the tune of an individual country, its regulatory framework, political outlook and domestic demand. Often, banks in these countries are growing and reflect the growing democratisation of finance for the world’s poorest people. This is a very different dynamic to Western banks.

There is a breadth of opportunities in these unloved countries.


There is also a perception that these markets are illiquid and difficult to access. Certainly, that can be the case, but the Trust doesn’t invest in any company that doesn’t have a fully audited set of accounts or that doesn’t have daily liquidity. That’s not to say that these markets don’t require careful work, but we travel to the countries and really get to know the businesses in which we invest. Despite trading daily, there are some liquidity constraints within these markets, and we believe that the closed end nature of the investment trust is an ideal vehicle for these markets.

Political risk is another criticism. The crisis in Ukraine has shown the vulnerability of some countries. We are aware that there can be challenges in these developing countries and if something goes wrong, with politics, macroeconomies, fixed income or currencies, we can get out. The Trust does not have to be invested everywhere or in any specific country. We’ve historically had substantial weightings in countries such as Nigeria or Turkey that barely feature in the portfolio today.

Also, it is worth noting that although we invest in ostensibly risky countries – Kazakhstan, Philippines, Argentina, Vietnam – the effect of bringing them together is important. In general, while these markets can be volatile in isolation, they are fairly uncorrelated to each other. When Kazakhstan had problems early in 2022, it had no impact on Vietnam or Greece for instance.


While COVID has been a challenging time for these countries, we believe they are just starting to get going again and could see strong growth in the years ahead. Yet they are trading at a significant discount to the rest of the world.

It’s not just the speed of growth, it’s also the quality of that growth. The companies in our portfolio achieve earnings growth of 10-15% without any financial chicanery. They haven’t had money thrown at them during the period of zero interest rates, so haven’t made the poor investments that characterise periods of abundant capital.

In the meantime, few people are investing in these countries while valuations are low. Investors are looking for growth and we believe eventually they will discover frontier markets, which show strong structural and population growth.

These are the Forgotten 40 – not the vast emerging markets of India, Brazil or China, but all the others. There is a breadth of opportunities in these unloved countries. Eventually, we believe, investors will start to recognise the value they hold.

This material is not intended to be relied upon as a forecast, research or investment advice and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are from BlackRock as of April 2022 and may change as subsequent conditions vary.