Washington, D.C., March 12, 2015 - Frontier Asian economies have enjoyed stronger growth than most emerging markets over the past decade, but face a range of challenges in achieving macroeconomic and political stability, according to a new report by the Institute of International Finance.
This in-depth report, first in a series covering frontier markets, defines Frontier Asia as Bangladesh, Mongolia, Myanmar, Pakistan, Sri Lanka and Vietnam, with plans to add Cambodia and Laos at a later stage.
The IIF noted that while Frontier Asian GDP per capita is still low, the gap with mainstream emerging economies is narrowing quickly, helped by favorable demographics and competitive export sectors.
"While the region's economies still face political challenges and macroeconomic vulnerabilities, they are growing rapidly," said Jean-Charles Sambor, director of Asia/Pacific at the IIF. "Asia frontier markets will be the emerging markets of tomorrow as macroeconomic fundamentals improve and local capital markets deepen both on the equity and fixed income sides. Some of these markets are still under-researched, so a regional overview should help assess both risks and opportunities for these countries as a group."
The IIF noted that Frontier Asian markets are generally less exposed to ongoing commodity price weakness than many other frontier economies, as most are net energy importers.' As a result, frontier Asian investment returns have been better sustained and less volatile than in other frontier market or emerging Asia over the past several months.
The IIF noted that Frontier Asian markets should continue to outperform Asian emerging markets and other frontier regions. Markets that are able to sustain progress towards macroeconomic and political stability should "graduate" to emerging market status in the next few years.
Frontier Asian markets should also begin to offer a wider range of investment opportunities across fixed income and equity markets as financial openness and market depth improve.' The IIF noted that low correlation with other asset classes has provided Asian frontier markets with idiosyncratic risk and good portfolio diversification, although this advantage may diminish over time as integration with global markets increases.
The Institute of International Finance is the global association of the financial industry, with close to 500 members from 70 countries. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth. Within its membership IIF counts commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks. For more information visit www.iif.com.