Unlocking Untapped Value: Emerging Market Frontiers

In an age of slowing growth in mature economies, investors and policymakers alike are turning their gaze to the dynamic promise of emerging and frontier markets. These economies, often overlooked or misunderstood, harbor untapped frontier market potential that can reshape portfolios, economies, and livelihoods. By combining rigorous analysis with a spirit of discovery, we can unlock opportunities that drive sustainable development and inclusive prosperity.

Understanding Emerging and Frontier Markets

Emerging markets (EM) are defined by intermediate income levels, rapid growth and a trajectory toward full integration in the global economy. They typically exhibit higher GDP growth rates, accelerated industrialization, and expanding infrastructure—elements that set them apart from developed markets. Within this broad category, frontier markets represent a subset characterized by smaller, less liquid capital markets and greater volatility, but also deeper pockets of mispricing and potential alpha.

• Higher-than-average GDP growth
• Rapid urbanization and infrastructure build-out
• Developing financial systems and policy reforms
• Export-led models leveraging low-cost labor

Macro Context: Why EM / Frontier Now?

Global growth differentials remain robust. The EM–developed market growth gap is projected to hover around 2.5 percentage points in 2025, with EM economies expected to expand near 5.5% versus roughly 3.0% in mature markets. On the corporate front, MSCI EM earnings growth is forecast at 17% in 2025, a sharp acceleration from 10% in 2024, underpinned by a rebound in consumer and industrial activity.

Valuations have rarely been this attractive. At the end of 2024, EM traded at one of the lowest forward price-to-earnings differentials versus the S&P 500 in two decades. A weaker U.S. dollar, declining global interest rates, and EM central banks poised to cut rates have buoyed both debt and equity markets, setting the stage for further outperformance.

Structural Drivers of Untapped Value

Multiple structural forces converge to create a fertile environment for growth and innovation. Demographics and urbanization are at the core, as many EMs—particularly in Africa and South Asia—boast young, expanding populations that will fuel consumption and labor supply for decades. Rapid city expansion drives demand in real estate, healthcare, and services, while an expanding middle class elevates living standards and spending power.

Accelerated urbanization and rising consumption are complemented by a technological surge. Mobile internet uptake, fintech innovation, and e-commerce platforms enable many markets to leapfrog traditional infrastructure constraints, closing gaps in financial inclusion and connectivity. Industrial policies further support an export-led growth model as governments channel resources into manufacturing hubs, institutional reforms, and global value chains.

• Demographic dividends and a growing labor force
• Leapfrogging via digital and fintech advances
• Export-driven manufacturing and logistics hubs
• Policy reforms and institutional modernization

The Frontier Angle: Finding Hidden Gems

Frontier markets, whether defined by small-cap capital markets or early-stage domestic sectors within larger EMs, often suffer from information asymmetry and segmentation challenges. Limited analyst coverage and low passive index weights can depress valuations, creating pockets of mispricing. As these markets mature, enhance governance, and attract more institutional capital, they can follow in the footsteps of Korea or Poland—locking in re-rating gains.

Another dimension lies in identifying frontier sectors inside dominant EMs. Green technology, healthtech, and digital infrastructure initiatives often trade at valuations that fail to reflect their growth trajectories, presenting an additional layer of potential for re-rating and growth as they scale and capture market share.

Key Regional Frontiers to Watch

Asia remains the beating heart of the EM universe. India shines with a domestically driven growth model, strong reform momentum, and friend-shoring flows that boost manufacturing. Southeast Asia’s internet economy is poised to hit USD 600 billion by 2030, supported by robust e-commerce and digital services.

Africa offers some of the most compelling demographic dynamics globally, with young populations driving urban expansion and a burgeoning consumer class. Infrastructure investments in roads, ports, and power grids are accelerating, paving the way for a sustained growth cycle. Eastern Europe and the Caucasus, often undercovered, combine near-developed fundamentals with valuations that still align with EM benchmarks, a state that could prompt index upgrades and capital inflows.

Managing Risks and Building Resilience

Investing in emerging and frontier markets demands an acute understanding of risks: political volatility, currency fluctuations, and regulatory shifts can reshape the outlook overnight. A disciplined approach—diversifying across geographies and sectors, engaging local partners, and employing robust risk management frameworks—can mitigate these hazards while preserving upside potential. Sovereign debt buffers, foreign exchange reserves, and transparent policymaking serve as guardrails that investors should monitor closely.

Looking Ahead: A Forward-Looking Lens

Looking toward the next decade, digital transformation and sustainable development will define the winners. Renewable energy projects from solar farms in India to wind corridors in North Africa signal a shift toward low-carbon growth. The rise of digital ID systems and open banking frameworks promise to deepen financial inclusion and streamline commerce. As EMs embrace these trends, transformative digital leapfrogging and green investments will reshape economic landscapes and investor returns.

Practical Steps for Investors and Stakeholders

• Diversify across multiple frontier corridors and sectors
• Partner with on-the-ground experts and asset managers
• Employ active research to uncover undercovered opportunities
• Monitor governance reforms and macroeconomic indicators
• Balance risk via currency hedging and position sizing

Emerging and frontier markets offer more than just financial returns—they represent a force for global progress, job creation, and poverty reduction. By embracing these opportunities with diligence and vision, investors can be part of a transformative story that uplifts communities, accelerates innovation, and delivers lasting value. The horizon is bright: it is time to unlock the untapped potential of tomorrow’s growth engines today.