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The “Frontier” Markets are Beckoning
A quick look at the world’s top performing stock markets during the first half of 2010 will not exactly ring bells for many investors. Bangladesh came in tops with a 40.7% gain, followed by Sri Lanka (34.6%), and Venezuela (18%). You have to get down to Chile, number four, to find an ETF (ECH), and to Thailand (TF), to find a fund peripherally covered in this letter (click here for the link at http://www.madhedgefundtrader.com/june-15-20100-vivian-lewis.html ). Only two of the top nine countries have dedicated funds.
Having a hard time finding any of these in your portfolio? Therein lies the problem. This is turning into a year when the world’s least liquid, most untradeable countries offering minimal amounts of public information and disclosure, are bringing in the best returns, shutting most of us out.
The Lilliputian size of these markets, where total market capitalization is less than that of a single medium sized company in the west, is keeping the big institutions out. The best gains are increasingly coming from outside the mainstream BRIC countries of Brazil, Russia, India, and China, which are becoming increasingly crowded with foreign index funds, ETF’s, hedge funds, and even individual investors fleeing subpar performance in the US.
These are being labeled as “frontier” or “pre-emerging” markets by early stage investors. Jim O’Neill at Goldman Sachs, who originally coined the term “BRIC” a decade ago, refers to several of them as the “N-11” (click here for “Goodbye BRIC’s, Hello N-11” at http://www.madhedgefundtrader.com/june-10-2010.html ).
They all offer the same story; an emerging middle class bursting on to the world economy, generating white hot growth rates like those seen in Japan (EWJ) in the fifties, Singapore (EWS) in the seventies, or China (FXI) today. These countries typically offer great infrastructure plays in banking, telecommunications, and constructuion.
Expect to hear a lot more about these markets in the future, and for your investment lives to become complicated as a result.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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How's your USD/JPY long? Oh yeah, getting crushed!
A market crash is due but buy the right large caps down near the lows and you'll have a great investment where you can sleep at nights, knowing some f**ker with a pitchfork isn't approaching your front door.
dont worry the US will be third world soon then you bricsters can buy local
Tired of the BRICs?
Looking for TRULY emerging markets with labor costs a fraction of China or Mexico?
Better yet, they are all in THIS hemisphere?
Take a good look at the CHENG countries...Colombia, Honduras, El Salvador, Nicaragua and Guatemala ...
with the exception of Colombia, where the civil war and the drug mafias still run wild, the others are on a development scale somewhere between Haiti and Bangladesh.. especially Guatemala and Nicaragua...
KrvtKpt laughing swordfish
Development expert for Untermenschen countries
Want a real frontier market? I have been buying in Nicaragua. 2nd poorest country in the Western hemisphere. Labor costs so low it is ridiculous. Land prices for producing ag properties so low the cap rates are 25%. Best of all is the government; everybody in the world is afraid of it as if it were a Chavez clone, but the Nica people won't have it.
No ETF, no bolsa of significance, nothing. The ULTIMATE in frontier markets, where the first one in, runs the show. You have no idea how little money it takes to run the show here. You'll make all your investment back before you even start to worry about when you are going to sell.
No, I have nothing to sell. But I do know where to buy.
This is funny. Obviously satire, right?
Oh, yeah.
So ... you wanna be the only gringo in Nicraragua when the SHTF? The only gringo with money?
I didn't think so. Better to invest in Antarctica which has no towns or even agriculture ... or green plants! Get in on the bottom floe, so to speak ...
Sure buddy. Let me get this right. You wouldn't buy large caps because you smell a market crash but you're recommending people pour into illiquid markets which are already up 30-40% this year.
Let us know how that trade works out for you.
If he's trying to sell his service, perhaps more content and less clip art would be the way to go.
Frontier markets, where have I heard of those before? Oh yeah, I been buying those for over a year now... a little late, IMHO, I would not buy them here.
MHFT,
I hope you are fully invested in Venezuela. Stay long, any pullback is probably just a correction. Don't worry, double down.
Published: June 4 2010 19:44 | Last updated: June 4 2010 19:44
Not much investor good cheer to be had from the G20 summit in South Korea. Rather than radiate confidence, all the officials meeting in the port town of Busan seemed openly worried about the chance of a double-dip global recession. And then there were the patrol boats prowling outside, a dark reminder of North Korea.
In fact, it can often feel as though there is no longer anywhere in the world for investors to safely and profitably sink their money. Developed markets are a crashzone. Emerging Europe’s fate is closely tied to the euro’s. Africa is a possibility; although given the size of their economies, Asia and Latin America are probably the regions to beat. Furthermore, of this pair Latin America might even have the best prospects of all.
That may sound absurd. Brazil is hot, and Mexico warming-up, but how can Argentina or Venezuela compare to manufacturing giants such as South Korea, let alone China? Yet high savings rates and large manufactured export bases are no guarantee of economic success. Look at Germany or Japan.
Like them, China depends on exports; trade accounts for 70 per cent of output. That makes it vulnerable to recession elsewhere. Brazil’s economy, by contrast, is led by growing domestic demand. Latin America may trade less with the rest of the world than Asia. But in a synchronised downturn, such isolation can have its merits.
Latin America also looks safe from domestic financial blow-up. Due to past crises, credit penetration is low, and lending prudent. By contrast, China’s state-owned banks are on a lending spree. As has been said: if you have no potatoes, you cannot get potato blight.
Then there is productivity. Latin America is usually assumed to be a laggard. Yet from 2005 to 2008, Brazilian total factor productivity rose at an annual average rate of 2.1 per cent, with Peru much the same. That is respectable, given that productivity rose 2.9 per cent in China and South Korea, which lead the Asian pack.
Latin America’s biggest problems are low savings and low investment. In the long term, these need to be addressed. Yet for now the need for foreign savings also ensures open capital markets. A history of low investment also means the marginal return on the marginal invested dollar should be higher in the west than the east.
The clincher, though, is surely geopolitics. Latin America has no rogue nuclear powers, nothing like the China-Taiwan dispute, Indonesia’s febrile religious atmosphere, let alone Thailand’s coup. Colombia-Venezuela frictions are a plaything by comparison. Indeed, the biggest immediate risk of trouble is probably from Brazil if Argentina wins the World Cup. At seven-to-one, the risk of an angry booing match erupting at the Iguazu Falls is safe enough to live with.
Copyright The Financial Times Limited 2010.
Sounds like the death croak to me. This herd will find the real axis again and it will get ugly.
Blah, blah, blah....
This guy is mad
When the worm turns, these "least liquid" markets will plumb deep, dark depths.
I think he will be selling me on growth in the NNL countries next...I hear there is huge upside in Never Never Land!
What about VNM - Vietnam? or Africa? Or is that not frontiery enough based on your criteria?
I love stock brokers.