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Morgan Stanley Frontier Emerging Markets Fund Incorporated debuted on the New York Stock Exchange on August 25. The fund is a newly organised, non-diversified closed-end fund. Its objective is to seek long-term capital appreciation by investing at least 80% of its net assets in equity securities of companies operating in frontier emerging market countries.
Frontier markets are developing economies with relatively undeveloped equity markets. There is no strict definition for what constitutes a frontier market, but they typically fall outside the emerging markets indices such as the MSCI Emerging Markets Index. Frontier markets tend to comprise the Middle Eastern, African and some of the smaller Asian and Eastern European markets.
With an estimated combined market capitalisation of around $1.7 trillion, frontier markets are in the early stages of development and growing towards entry into the emerging markets indices. They offer the prospect of high growth rates and returns, together with low correlation to the more mainstream emerging and developed markets.
Morgan Stanley Investment Management will combine top-down country allocation based on relative economic, political and social fundamentals, stock valuations and investor sentiment, with bottom-up fundamental analysis seeking to identify issuers with investor-friendly management, effective use of free cash flows and strong earnings growth potential.
Frontier emerging market countries in which the fund currently intends to invest include Bahrain, Bangladesh, Botswana, Bulgaria, Croatia, Ecuador, Estonia, Ghana, Jamaica, Jordan, Kazakhstan, Kenya, Kuwait, Latvia, Lebanon, Lithuania, Macao, Mauritius, Namibia, Nigeria, Oman, Panama, Qatar, Romania, Saudi Arabia, Serbia, Slovenia, Sri Lanka, Trinidad and Tobago, Tunisia, Ukraine, United Arab Emirates and Vietnam.
The fund's assets are managed within Morgan Stanley Investment Management's emerging markets equity team. Current members of the team who are responsible for the management of the fund are Ruchir Sharma, head of the emerging markets equity team, and Tim Drinkall, an executive director of Morgan Stanley Investment Management. Both are based in New York.
"We have a long tradition of emerging markets investing dating back to the mid-1980s, with the objective of helping investors capture growth opportunities in developing economies," says Sharma. ôThe fund's registration in over 30 frontier markets across geographical regions gives us a wide footprint to make active country allocation decisions.ö
Morgan Stanley Investment Management, a wholly owned unit of Morgan Stanley, manages more than $30 billion in emerging markets equity assets.
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