Looking Both Ways: A Quarter Century in Emerging and Frontier Markets

Abstract

Looking back to 1990, it is easy to forget the primitive world in which we lived. My cell phone was bigger than a brick. Nelson Mandela was freed in February 1990, and Lithuania declared independence in March. Since then, the world population has gone from 5.2 billion to 7.2 billion, and India has gone from a population of 850 million to 1.3 billion, catching up with China. Fortunately, in the past 25 years, gross domestic product per capita in China has grown at 9% and India at 5%. Child mortality and literacy have both improved markedly throughout the developing world.

Despite these improvements, there is renewed skepticism about investment in developing markets. Our research suggests that the years ahead will see continued convergence of incomes as the poor countries catch up with the rich. Although gross domestic product per capita growth in the United States may be 2.2% between now and 2050, China could grow at 4.6% and India at 6.2%. There are 22 emerging and frontier markets selling at forward price-to-earnings ratios below 10×, and we believe this is a good time for a close look at them.