Since the stock market hit bottom in March 2009, investors have poured into emerging-market mutual funds on the expectation that countries such as China, Russia, Brazil and Indonesia will grow far more rapidly than the developed economies in the United States, Europe and elsewhere.
Some adventuresome investors are going a step further, laying down bets in such unlikely investment locales as Mongolia, Nigeria and Lebanon.
They're wagering that stocks in such "frontier markets," despite fairly dismal returns until now, have the untapped investment potential that once-obscure emerging markets had 20 years ago.
No one expects Nigeria or Bangladesh to balloon into the next China or India. But enthusiasts say frontier markets, which some analysts label pre-emerging, present many of the same economic traits and long-term investment opportunities as their more mature cousins did in their infancy.
A frontier market typically is rich in resources with a consumer class that is just now emerging and a core of promising companies whose efficiency is being sharpened by a fierce global marketplace.
Their economic progress has been slow and uneven, and their stock markets overall have lost much more in recent years than markets in more developed economies. But proponents of frontier investing say it is an opportunity for people who wish they had gotten in during the early days of the emerging-market craze.
"It's like going back to 1987," said Mark Mobius, manager of the Franklin Templeton Frontier Markets fund. "They all have incredible growth potential."
The risks are many.
The quality of the companies, the transparency of their accounting and the friendliness of their shareholder policies can vary widely from one country, or one company, to another. Government regulation can be shoddy. And the handful of funds specializing in frontier markets have limited track records and sometimes hefty expenses.
And that's not to mention the generally weak investment performance of many frontier markets.
Emerging markets have long been boom and bust, and frontier markets are no different — except they busted harder during the global downturn, then boomed much less during the recovery since then.
The MSCI Emerging Markets index is up 88% since February 2009, more than double the 39% gain in the MSCI Frontier Markets index. Going back to the end of 2006, the emerging-markets gauge is up 3.1% while the frontier-markets index is down a hefty 35%.
Adding to the risk, the performance of individual frontier funds varies widely. For example, the T. Rowe Price Africa and Middle East fund is up 60% in the last 16 months. The Forward Frontier Markets fund, by contrast, has risen 31%.
Investors drawn to frontier markets should tread carefully, invest only for the long term and allocate only a small percentage of their portfolio to the sector, said Gregg Wolper, a senior analyst at fund researcher Morningstar Inc.
"You don't want to be too negative because 20 years ago if someone said 'I'm going to buy China or Russia,' that would have sounded crazy," Wolper said. "There is the chance that some of the [frontier] countries could move into the more emerging-market realm, but whether that chance is 20% or 80% is the toughest call and impossible to tell."
There's no official definition of a frontier country. The MSCI Frontier Markets index stretches from Qatar and the United Arab Emirates to Lithuania, Kazakhstan, Pakistan and Vietnam.
Frontier countries suffer, enthusiasts say, from a mistaken perception that they are lawless outposts.
The first time T. Rowe Price fund manager Joseph Rohm visited the Nigerian city of Lagos, the local broker who set up the trip shuttled him around in an armored personnel carrier with security guards toting submachine guns.
It was "completely over the top," he said, and in his visits since then, he has walked by himself in a suit and tie without a problem.
"People have an image of it being people walking around with guns, and that's absolutely not the case," he said. "The best investments are made when there's a big difference between perception and reality. A lot of frontier markets speak quite nicely to that."
The upside of the renegade image, enthusiasts say, is that frontier-market stocks carry lower valuations based on standard measures than those of emerging markets.
Frontier markets also have been overshadowed by investors' ardor for the highest-profile emerging markets, particularly China, fund managers say. But China's growth is a boon to some frontier countries because the Asian giant is buying from and investing in resource-rich countries in Africa and elsewhere, they say.
But that can cut two ways if slowing economic growth lowers the prices obtained for those resources.
"These markets are definitely reliant on there being a demand for commodities," Rohm said.
In his fund, Rohm has invested heavily in banks and financial-services companies. He has bought shares of some construction-related firms because of strong infrastructure growth in several frontier countries, especially in the Middle East and in places such as Kenya. He also is buying consumer-related companies, especially telecom firms, expecting demand to grow as middle classes emerge.
Mobius, a well-known foreign-stock manager, likes Vietnam, Kazakhstan, Ukraine and Nigeria.
In addition to the handful of regular mutual funds specializing in frontier markets, an increasing number of exchange-traded funds are springing up, some of them focusing on just one country.
The Claymore/BNY Mellon Frontier Markets fund and the PowerShares MENA Frontier Countries Portfolio invest in multiple countries. Van Eck Global features several single-country ETFs, including funds focused on Egypt, Poland and Vietnam.