“The time has arrived for nascent markets to take some form of center stage, and we are working on several mandates,” Akbar Poonawala, head of global equity services at Deutsche Bank, told The Wall Street Journal.  “When we met investors, we were surprised to find significant unsatisfied demand for frontier emerging markets.”

Frontier markets include Romania, the Ukraine, the Gulf Co-operation Council, Nigeria, Kenya, Columbia, Ecuador, Vietnam and Bangladesh, whereas the most established BRIC emerging markets are Brazil, Russia, India and China.

There are one billion people in frontier markets, which have a combined $2.4 trillion in gross domestic product and an equity market capitalization of $1.7 trillion. Emerging markets, on the other hand, have 3.7 billion people, $12.1 trillion in gross domestic product and a $12.7 trillion market capitalization, according to a new report from Merrill Lynch called “Frontier Markets: What, Who, Why?”

The volume of equity trades in emerging markets has increased nearly 30% so far this year to $255 billion, up from $199 billion throughout all of 2006, according to Dealogic.

The credit crisis in the U.S. is also prompting fund managers and investors to look abroad, said Henry Hall, head of emerging market equities for Europe, the Middle East and Africa at Merrill Lynch. “Institutional investors have started looking at these markets as a way of diversifying because they offer returns that are uncorrelated to nonfrontier markets,” Hall said.

But not everyone believes that U.S. fund managers are so eager to invest in frontier markets. As it is, emerging market mutual funds have  only have 1% of their assets invested in frontier markets, according to Merrill Lynch emerging market equity strategist Michael Hartnett.

“Frontier markets tend to be young, thinly traded equity markets with weak regulatory frameworks, low levels of transparency and low levels of foreign ownership,” Harnett said.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.