Why Frontier markets have such a big role to play in global trends

There are powerful changes happening in the global economy. Mounting geopolitical tensions bring risks for companies. The threat of higher tariffs, and – at the extremes – sanctions, could create potential disruption to companies’ supply chains and distribution networks. To that effort, many companies have been reorganising their supply chains to adjust to this new reality. We believe a number of the world’s smaller emerging markets could be beneficiaries.

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.

First the disruption of the pandemic, and now tariffs, trade wars and military conflict have forced companies to look again at how and where they source materials. This is particularly acute in areas such as the raw materials needed for the energy transition, where a lot of countries are competing for the same resources¹.

Supply chains are being re-routed, and trading relationships redrawn. A recent survey from McKinsey showed nine in ten respondents had encountered supply chain challenges in 2024. The survey found ‘near-shoring’ - bringing manufacturing closer to home – is in full swing, with 60 percent of respondents acting to regionalise their supply chains².

Emerging markets of neutral countries present new opportunities

As geopolitical tensions rise, we believe that neutral countries could stand to benefit. Increasingly, larger trading nations are looking to the cheap, skilled labour forces and abundant natural resources of the world’s smaller economies as a less complex and more reliable way to source the products and services they need³. We believe this can create opportunities across a number of frontier markets.

This trend also extends to the sourcing of raw materials. The energy transition happening across the globe as countries move to low carbon fuels is resource-intensive. Western nations in particular, may prefer to trade more with countries that have taken a neutral political stance in response to increasing geopolitical tension. This has helped demand for copper from Chile, nickel from Indonesia, metals from Kazakhstan.

Apple, which previously concentrated much of its manufacturing in China, is now diversifying its operations to include other locations such as Vietnam. In a recent results presentation, CEO Tim Cook said most iPads, Macs and Apple Watches will come from Vietnam⁴. Similar trends are also observed in Thailand, Malaysia and Indonesia⁵.

How emerging markets are benefiting from shifting trading patterns

Why do these shifting trading patterns matter for smaller emerging markets? They are a powerful means to change a country’s economic fortunes, we believe. International companies setting up manufacturing plants create jobs, which puts money in people’s pockets, which supports the growth of a consumer economy. This is where investment opportunities can start to flourish.

These frontier markets are also where we focus our attention. The top holdings in the BlackRock Frontiers portfolio include a bank in Indonesia, an information technology service company in Vietnam, an online marketplace in Kazakhstan and a mobile company in Saudi Arabia⁶.

These opportunities are often interconnected. Banks play a crucial role in economic development, especially as financial inclusion expands and the demand for business funding increases. The growth of online commerce is closely linked to the spread of mobile telephony, while technology services are essential to support digitization. Together, these factors can help drive long-term capital growth for our investors.

In this way, a small initiative—such as an international company establishing operations in an emerging market—can have a transformative impact. It can stimulate self-sustaining domestic growth and create new investment opportunities. It is this capacity for change that makes investing in frontier markets so exciting.

¹ Global Witness - The critical minerals scramble - 20 March 2025
² McKinsey - Supply Chains: still vulnerable - 14 October 2024
³ Economist Impact - Trade in Transition 2025 - 15 November 2024
⁴ Reuters - Apple girds for more trade war pain, trims buyback - 2 May 2025
⁵ CTMfile - Global companies navigating from ‘China plus one’ to a ‘China plus many’ world - 9 September 2024
⁶ BlackRock - BRFI factsheet - 30 June 2025

Risk Warnings

Investors should refer to the prospectus or offering documentation for the funds full list of risks.

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.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time and depend on personal individual circumstances.