WHAT WILL US HIGHER INTEREST RATES MEAN FOR FRONTIER MARKETS?
There's a widely held belief among investors that when U.S. interest rates rise, the performance of Emerging and Frontier Markets suffer.
But when we look at the data, what we can see is that there's actually quite a positive correlation between the direction of U.S. interest rates and the performance of Frontier Markets.
Now, there may be a small time lag, but eventually, when interest rates rise, frontier markets do well. We decided to take a closer look to try to explain why this is the case and why it goes contrary to the popular belief among investors.
And the explanation may actually be quite simple: bondholders get more income when interest rates rise. Therefore, they probably have a higher risk budget which is then invested into riskier asset classes. And Frontier Markets may actually be one of the beneficiaries of that extra income.
And becuase we currently in a rising U.S. interest rate cycle, could this bring renewed interest in the Frontier Market asset classes?