More disconcerting is that sell-side brokerages, mutual funds and articles in the mainstream press are touting frontier markets as a surefire way to cash in on the next great growth stories. A big selling point, repeated ad nauseam, is these markets' low correlation with developed markets, at 0.30 to 0.40.

This suggests that investors might be able to profit in these markets when major exchanges are struggling. But as most have learned recently, the perception that emerging markets are largely disconnected from the developed world goes right out the door when a major crisis hits, with sell-offs tending to be more severe where prices have risen sharply.

For example, MSCI reported that as of mid June African markets were down more than 8%, while Central and Eastern European exchanges were off nearly 15%.

Just like their developed counterparts, frontier markets can collide with economic realities related to hyper-growth. Vietnamese shares, which doubled over three years through 2007, have lost nearly two-thirds of their value since January. Strong foreign investor sentiment that had propelled local shares has reversed amid evidence of soaring inflation, trade deficits and interest rates. Leveraged investing has been replaced by poor liquidity. And Standard & Poor's, which rates Vietnam's sovereign credit at BB+, has shifted its outlook from stable to negative.

T. Rowe Price makes a compelling case for Africa, citing its economic, legal and political reforms; its improving macroeconomic conditions; its falling debt; its attractive earnings outlook and valuations; and its limited analyst coverage. But in its prospectus' small print, the fund company warns that its Africa and Middle East Fund involves a high degree of risk, subject to abrupt and severe price declines, and should be regarded as speculative.

Which one is it? Are we looking at an astute, ahead-of-the-curve investment venture or are we going to the racetrack? The answer is probably a bit of both.

Venerable Templeton fund manager Mark Mobius thinks that frontier markets are characterized more by a lack of liquidity, wide price spreads and volatility rather than by inadequate reporting and regulation. He finds many firms run by well-educated managers who have cut their teeth in developed markets, and that the firms issue statements in accordance with the International Financial Reporting Standards.

"While some boards may not have enough oversight in place to ensure comprehensive accounting," says Mobius, "it is unlikely at this stage in their development that we'll uncover the kind of sophisticated accounting scandals we've seen in the States."

Jim Harmon, who in 2004 started the Caravel Fund-a $154 million hedge fund that focuses on frontier markets-believes that with proper due diligence, frontier investing is not especially more risky than most emerging and developed market plays. There is more volatility because of trading thinness, Harmon explains. But he thinks long-term investors can do quite well, if his fund's performance is any indication. It has racked up more than 40% in annualized returns over the past three calendar years.

In taking a bottom-up approach, Harmon explains that his portfolio managers get to know both the companies and their stock markets. "We go through the same steps as most developed managers do," he says, "meeting with management, reading financial histories and projections, talking with customers, suppliers and competitors." And he does this with analysts who often know the local languages and culture.