Quick Take: Frontier markets—low valuations, attractive prospects

February 2021

Frontier market relative valuations: Near historic lows

  • Relative to emerging and developed markets, frontier market price-to-earnings ratios are approaching the depths last seen during the Global Financial Crisis. (top chart)
  • This comparative discount reflects both towering DM and EM valuations as well as the disproportionate impact of the COVID crisis on frontier. 

Institutional flows: Net redemptions in recent years

  • Since 2017, frontier strategies have experienced net outflows. Cumulative flows, in fact, are essentially flat since 2012. (bottom chart) As a result, several asset managers have shuttered their frontier strategies.

Relative P/E Ratios: Frontier versus Emerging and Developed Markets

Institutional Asset Flows

Top chart: Ratio of trailing twelve-month P/E ratio for MSCI Frontier Markets relative to MSCI Emerging Markets and MSCI World. It is not possible to invest directly in an index. Every investment program has the opportunity for losses as well as profits. Past results are not indicative of future results Bottom chart: Cumulative asset flows in the eVestment Frontier Markets universe.
Sources: Acadian based on data from MSCI and eVestment. For illustrative purposes only.
MSCI data: Copyright MSCI 2021, All Rights Reserved. Unpublished. PROPRIETARY TO MSCI. eVestment data: eVestment and its affiliated entities (collectively, "eVestment") collect information directly from investment management firms and other sources believed to be reliable; however, eVestment does not guarantee or warrant the accuracy, timeliness, or completeness of the information provided and is not responsible for any errors or omissions. Not for general distribution. * All categories not necessarily included; Totals may not equal 100%. Copyright 2013-2021 eVestment Alliance, LLC. All Rights Reserved.

Fundamentals remain enticing

  • The growth outlook for frontier countries remains encouraging given favorable demographics, relatively low levels of government and corporate debt, and supportive macroeconomic factors. Although the relationship between GDP growth and equity returns is complex, we see current relative valuations as an attractive entry point.
  • Furthermore, we believe that diminished focus on frontier from the institutional active management community will create greater opportunity for those skilled active managers who remain focused on these markets.

 

General Disclaimer

 

Acadian provides this material as a general overview of the firm, our processes and our investment capabilities. It has been provided for informational purposes only. It does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or to purchase, shares, units or other interests in investments that may be referred to herein and must not be construed as investment or financial product advice. Acadian has not considered any reader's financial situation, objective or needs in providing the relevant information.
The value of investments may fall as well as rise and you may not get back your original investment. Past performance is not necessarily a guide to future performance or returns. Acadian has taken all reasonable care to ensure that the information contained in this material is accurate at the time of its distribution, no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of such information.
This material contains privileged and confidential information and is intended only for the recipient/s. Any distribution, reproduction or other use of this presentation by recipients is strictly prohibited. If you are not the intended recipient and this presentation has been sent or passed on to you in error, please contact us immediately. Confidentiality and privilege are not lost by this presentation having been sent or passed on to you in error.
Acadian’s quantitative investment process is supported by extensive proprietary computer code. Acadian’s researchers, software developers, and IT teams follow a structured design, development, testing, change control, and review processes during the development of its systems and the implementation within our investment process. These controls and their effectiveness are subject to regular internal reviews, at least annual independent review by our SOC1 auditor. However, despite these extensive controls it is possible that errors may occur in coding and within the investment process, as is the case with any complex software or data-driven model, and no guarantee or warranty can be provided that any quantitative investment model is completely free of errors. Any such errors could have a negative impact on investment results. We have in place control systems and processes which are intended to identify in a timely manner any such errors which would have a material impact on the investment process.
Acadian Asset Management LLC has wholly owned affiliates located in London, Singapore, and Sydney. Pursuant to the terms of service level agreements with each affiliate, employees of Acadian Asset Management LLC may provide certain services on behalf of each affiliate and employees of each affiliate may provide certain administrative services, including marketing and client service, on behalf of Acadian Asset Management LLC.
Acadian Asset Management LLC is registered as an investment adviser with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any level of skill or training.
Acadian Asset Management (Singapore) Pte Ltd, (Registration Number: 199902125D) is licensed by the Monetary Authority of Singapore.
Acadian Asset Management (Australia) Limited (ABN 41 114 200 127) is the holder of Australian financial services license number 291872 ("AFSL"). Under the terms of its AFSL, Acadian Asset Management (Australia) Limited is limited to providing the financial services under its license to wholesale clients only. This marketing material is not to be provided to retail clients.
Acadian Asset Management (UK) Limited is authorized and regulated by the Financial Conduct Authority ('the FCA') and is a limited liability company incorporated in England and Wales with company number 05644066. Acadian Asset Management (UK) Limited will only make this material available to Professional Clients and Eligible Counterparties as defined by the FCA under the Markets in Financial Instruments Directive.