Taming Frontier Markets

Abstract

ings estimates for Brazilian stocks. hat we call “emerging” markets are of increasing interest to U.S. institutional investors. Extraordinary returns in Latin America in 1991, well over 100% in several countries as reported by the International Finance Corporation (IFC), follow years of high returns in the stock markets of newly industrializing countries in Asia. Like the California gold rush of 1849, news of these discoveries has prompted extravagant hopes and extensive prospecting. Such a degree of popular interest should not discourage serious investors, for the applicable analogy is not to a single gold strike, but to the opening up of the American West. While the investment opportunities deal with the migration of ideas rather than of people,. arguably the result will be similar: movement of the frontier of the free market economy across the borders of many currently lessdeveloped countries over the next several decades. Great wealth, both public and private, will likely be created. Our discussion has three parts. The first part maps the territory and how it is changing. Then we bring some common sense to bear on the rumored dangers abroad. The last part provides a useful tool for one’s trip to the frontier.