The geopolitical landscape continues to shift, with supply chains being redrawn and political alliances changing. This environment will, in our view, continue to support a re-organisation of globalisation that will benefit many parts of emerging markets. We continue to find a range of opportunities in different sectors across smaller emerging and frontier markets, as companies relocate.
We see a world splitting into three groups: those aligned with China, those aligned with the US and the rest. The latter group – for which the Economist has coined the term “Transactional 25” – these are 25 countries that are uniquely positioned to benefit from their ability to trade with both China and the US. Global companies want stable supply chains that are not vulnerable to a new tariff regime, or geopolitical volatility. This puts these countries in a strong position to attract investment, in our view.
Geopolitical tensions to foster new growth opportunities
Frontier markets and other smaller emerging markets are well-represented among the transactional economies set to benefit. For example, some of the largest American companies have historically done much of its manufacturing in China, but geopolitical tensions are making this more complex and they have sought to diversify their supply chains across alternative locations. Vietnam, for example, has been a beneficiary. For these countries, it often has a knock-on effect on economic growth and consumption. We expect this phenomenon to continue in 2025
Malaysia is another example of a market benefitting from increased geopolitical fragmentation, as well as the spill-over for power demand from Singapore. We see evidence of re-shoring across various sectors, particularly in parts of the semi-conductor supply chain as both Chinese and US companies take advantage of the existing ecosystem in Malaysia and the availability of affordable land, power capacity and skilled labour.
Frontier markets and emerging growth sectors
Frontier markets remain plugged into important emerging growth sectors, including technology, emerging market consumption and vital natural resources.
We continue to see improving economic activity in frontier and smaller emerging markets. With inflation falling across many countries within our universe, rate cuts are possible for many emerging economies. This is a good set up for a revival in economic growth because it helps lower borrowing cost and revive investment.
We remain positive on the outlook for smaller emerging markets and find significant value in currencies and equity markets across our investment opportunity set. The Frontier market investment universe, in absolute and relative terms, remains under-researched and we believe this should enable us to find opportunities.
For more information on this Trust and how to access the potential opportunities please visit: www.blackrock.com/uk/brfi
By Emily Fletcher, Co-Manager of the BlackRock Frontiers Investment Trust:
