The resurgence of Donald Trump in the White House has reignited uncertainty in global markets, prompting investors to reassess their strategies. With renewed tariff threats and escalating geopolitical tensions, emerging market investors are seeking safer opportunities. In this new landscape, frontier markets—once considered the riskiest segment of emerging economies—are now seen as attractive investment destinations due to their insulation from US trade policies.
The Mexican peso has been particularly volatile, while enthusiasm for Chinese investments has waned, and the once-promising outlook for broader emerging markets has dimmed. In contrast, frontier markets in Africa, Eastern Europe, Asia, and Latin America are drawing interest. These economies may carry their own unique risks, but their relative immunity to trade wars and policy upheavals makes them an appealing refuge for investors. Countries such as Serbia offer strong economic growth prospects, while Ghana, Zambia, and Sri Lanka, having recently emerged from debt restructuring, now have the opportunity to focus on sustainable growth and reform.
Investment professionals are increasingly bullish on frontier markets. Thierry Larose, an emerging market portfolio manager at Vontobel, believes these markets provide a powerful diversification tool, as they are largely shielded from the broader risk cycles affecting mainstream emerging economies. Anton Hauser, senior fund manager at Erste Asset Management, highlights Serbian local bonds as a compelling choice due to Eastern Europe’s economic strength.
The global investment climate has historically pushed capital towards safe-haven assets like US Treasuries, gold, or German bonds in times of uncertainty. However, Trump’s return to power presents a different dynamic. High-yield frontier debt has delivered impressive returns in the past, with Argentine, Lebanese, Ukrainian, and Ecuadorean bonds performing exceptionally well last year. Investors expect similar success stories to emerge in 2025, driven by country-specific factors rather than global macroeconomic trends.
Africa remains a focal point for frontier market investments, with Egypt, Nigeria, and the Dominican Republic attracting attention. Countries like Zambia, Ghana, and Sri Lanka, having successfully navigated debt restructuring, are now poised for growth. Turkey and South Africa, while not classified as frontier markets, also present promising opportunities. Turkey’s return to orthodox economic policies and its recent rate-cutting cycle make it an appealing destination for foreign capital, while South Africa’s diversified export base and reduced dependence on US trade help position it as a stable investment target.
Investors are also exploring less conventional opportunities. Societe Generale’s lead CEEMEA strategist, Marek Drimal, has highlighted successful trades in foreign exchange forwards in Egypt and treasury bills in Kenya, reinforcing the potential in lesser-known markets. However, not all emerging economies will benefit from this shift. JPMorgan recently downgraded Panama’s bonds amid Trump’s renewed rhetoric about reclaiming the Panama Canal, indicating that some previously promising investment destinations may face renewed challenges.
Additionally, frontier markets that previously gained from US-China trade tensions may see a reversal in fortunes. Countries like Mexico, Vietnam, and Malaysia, which benefited from diverted trade during Trump’s first term, could now find themselves under closer scrutiny. Magda Branet of AXA Investment Managers warns that Trump’s administration will likely seek to close these gaps, potentially impacting their investment appeal.
As global investors navigate this new era of unpredictability, frontier markets present a compelling alternative. With their relative independence from US trade policies and strong local growth narratives, they offer a strategic avenue for those seeking high-yield, high-reward opportunities in 2025.
Fidelity Emerging Markets Limited (LON:FEML) is an investment trust that aims to achieve long-term capital growth from an actively managed portfolio made up primarily of securities and financial instruments providing exposure to emerging markets companies, both listed and unlisted.
