Executive Insight – The foray into frontier markets and emerging economies

For market participants and observers alike, 2011 brought about the sense that varying asset classes, which traditionally are not so closely linked to one another, had suddenly moved together in lockstep. This possibly shook some people’s belief in the benefits of diversification, attributed in modern times to Harry Markowitz under the Modern Portfolio Theory. Riskier asset classes — from equities to high-yield fixed income and from real estate to currencies to commodities — have reacted in a similar fashion to the ebbs and flows of global headlines. Concerns of slowing economic growth from the two largest economies, the United States and China, uncertainty regarding the viability of the European Union and fears of a sovereign debt crisis in its southern members brought heightened nervousness and volatility to global markets. Some market participants suggest that during times of market distress assets tend to move closer to, or to correlate with, one