Investors Favour Frontier Markets For Diversification, Want More ESG Data
New research by Dragon Capital, Vietnam's largest independent asset manager with UK investors, analyses UK institutional investors and wealth managers attitudes to investing in frontier markets.
UK investors are increasingly looking to frontier markets for diversification but want more ESG data if they are to increase their allocations, new research by Vietnam specialist asset manager Dragon Capital shows.
The study found that almost six out of 10 of UK institutional investors and wealth managers strongly agree that frontier markets provide attractive diversification benefits compared with emerging and developed markets.
Nearly nine out of 10 say that ESG credentials are important when investing in frontier markets, with 26 per cent describing them as very important, the research reveals. It also shows that 89 per cent expect the importance to increase over the next three years.
Dragon Capital focuses on Vietnam as an economy, regarding the country - still under formal Communist Party control - as one of the more promising frontier/emerging market economies in Asia.
Investors, however, want more ESG data if they are to increase allocations to frontier markets. As many as 89 per cent of those questioned said that if frontier markets and funds investing in them had more data to illustrate their ESG credentials, inflows would grow, the research shows. Investors believe that fund managers will work harder to help companies raise their ESG credentials, with 85 per cent expecting an increase in fund manager intervention over the next three years, the firm added.
"We believe companies that take ESG risk seriously are positioning themselves favourably for the long term,” Dien Vu, deputy CIO at Dragon Capital and portfolio manager of the $2.6 billion London-listed fund Vietnam Enterprise Investments Limited, said
“Frontier markets typically have high rates of GDP growth and enjoy periods of rapid urbanisation, growing middle class formation, increased domestic consumption, and elevated levels of foreign direct investment, all of which make for attractive investment opportunities,” he added.
The study was carried out on behalf of Dragon Capital by independent research company PureProfile which interviewed 27 institutional investors and wealth managers in the UK during February 2022 using an online methodology. Dragon Capital is Vietnam’s largest independent asset manager with UK investors who collectively have over $105.25 billion in assets under management.
In 2019, Dragon Capital created a "biodiversity economics" academic post at the University of Exeter in the UK. The move is an example of how wealth managers are tapping into public concerns about the environment.