Global opportunity

Managers offer their favorite picks along the frontier

Money managers see opportunities in a number of frontier market countries right now.

Stephen Bailey-Smith, an investment strategist and senior economist at Global Evolution in London, said one of the firm's strongest performing positions has been “in local Mozambique — where the local market is flying, despite the dollar debt (being) in default.”

He said the country is benefiting from tighter monetary policy since a new central bank governor took over, improvement in terms of trade for the country's commodity exports and resumed optimism around the development of off-shore gas fields.

Other commodity-dependent economies, including Zambia, Azerbaijan, Kazakhstan, Mongolia and Nigeria — where governments have been forced to restructure their economies, often with help from the International Monetary Fund, alongside firmer commodity prices — “are now looking in a much better place,” Mr. Bailey-Smith said The firm also has invested in the strong structural transformation trades ongoing in Egypt, Argentina and Ukraine, he added.

Kazakhstan is the “preferred play in the frontier market universe” for Alexander Valchyshen, head of research at money management firm ICU in Kiev, Ukraine. “It managed to escape recession in 2014-'15 while its close neighbor and key trade partner Russia entered recession in 2014 having struggled since early 2013.” Mr. Valchyshen He said Kazakhstan avoided recession because the currency was allowed to float and overshot in terms of devaluation.

Egypt was singled out by a number of money management executives, including Oliver Weeks, London-based economist with Emso Asset Management Ltd. “We particularly like Egyptian treasury bills after a large (Egyptian pound) devaluation last year and the introduction of strong fiscal reforms,” Mr. Weeks said in an email.

Romania was highlighted as “a recent example (of) where we have made profitable investments in oil and property,” said Jonathan Neill, London-based chief investment officer at FPP Asset Management LLP. “This fast-growing economy with a competitive currency despite its (European Union) membership had been ignored by investors. Meanwhile its capital markets are developing at a rapid pace,” he said.

Vietnam is the pick of Virginie Maisonneuve, Singapore-based chief investment officer at Eastspring Investments. “Supporting long-term demographic trends and clearly favorable consumption patterns continue to attract investor attention,” she said.

And within the frontier markets themselves, Ross Teverson, London-based head of strategy, emerging markets at Jupiter Asset Management, said a number of African banks, in Nigeria and Kenya for example, “stand out as offering good long-term growth prospects that are not currently reflected in valuations.”

This article originally appeared in the May 29, 2017 print issue as, "Managers offer their favorite picks along the frontier".