[size=14pt]Newfound Strength in Frontier Markets[/size]



By TIM GRAY
[size=14pt]Published: July 9, 2010[/size]

THREE years ago, when Joseph Rohm, manager of the T. Rowe Price Africa and Middle East fund, visited Lagos, the capital of Nigeria, he was chaperoned by guards carrying semiautomatic weapons. [size=14pt]These days, he strolls the streets alone. “I feel safer in Lagos than I do in Johannesburg,” said Mr. Rohm, a native of South Africa.[/size]

That transition underscores the changing reality of so-called frontier stock markets, those that are less developed than emerging markets like Brazil, China and India. Countries, whole regions even, that a few years ago were dismissed as perilous to both body and bourse have come into stock market vogue.

Big investment companies have rolled out mutual funds and exchange-traded funds that put all or at least a big chunk of their money in frontier regions. [size=13pt]Mr. Rohm’s fund, one of the older offerings, began in 2007. As of the end of April, it had invested about three-fourths of its $207 million in countries including Nigeria[/size], Kenya and Qatar. For the 12 months through June, it returned 17 percent.

Two leading providers of exchange-traded funds, Claymore Securities and Invesco PowerShares, have also introduced frontier products. The Claymore/BNY Mellon Frontier Markets E.T.F. invests around the world, while the PowerShares MENA Frontier Countries Portfolio focuses on the Middle East and North Africa. Both are built upon frontier-market indexes and invest passively.

The frontier pitch resonates at a time when the American and Western European economies are struggling and United States interest rates are sagging. And returns in several of the leading emerging stock markets, Brazil, China and Russia, have faltered this year, after surging in 2009.

“We view frontier markets as attractively valued compared with emerging markets,” said Constantine Papageorgiou, a senior portfolio manager at Acadian Asset Management in Boston. “They didn’t participate in the huge run-up in 2009 that you saw in the emerging markets.”

Frontier investing is a new-enough phenomenon that professionals disagree on which countries make up the sector. Different managers and index providers include different names. The Claymore E.T.F., for example, has Chile and Poland among its top five holdings, though neither is part of the MSCI Frontier Index. The index includes such diverse countries as Argentina, Romania, Kenya and Kazakhstan. It rose 0.66 percent, including dividends, in the first six months this year, compared with a negative total return of 7.57 percent for the Standard & Poor’s 500-stock index. [size=14pt]The frontier index has been helped along by positive returns in three of its important markets — Nigeria, Kuwait and Qatar.[/size]

[size=14pt]Almost everyone, including MSCI, puts Nigeria in the frontier category. “I get people asking, ‘Who’s the next Brazil?’ ” said Adam J. Kutas, manager of the Fidelity Emerging Europe, Middle East and Africa fund. “I answer without hesitation that it’s Nigeria,”[/size] because it also has a large population and a huge base of natural resources.

Nigeria holds hefty oil reserves — the world’s 10th largest, according to the Central Intelligence Agency. For years, its riches produced unrest, as residents of the oil-producing Niger Delta rebelled against what they saw as too small a share of the profits. [size=14pt]Lately, the delta has stabilized, and the country, formerly a military dictatorship, has had several democratic transitions.[/size]

Rising commodity prices have helped Nigeria and several of the leading African economies, which tend to be resource-rich, says Paul Collier, director of the Center for the Study of African Economies at Oxford University. “These countries are the last frontier for natural resource discovery,” Professor Collier said. “With high commodity prices, it’ll all get discovered. ”

[size=14pt]At the same time, policy makers in places like Nigeria have tamed hyperinflation and liberalized trade, he said. That combination of resource wealth and macro stability is attracting investors.[/size]

Many but not all of the frontier countries are richly endowed with commodities. As expected from economies on four continents, they’re diverse. Kazakhstan, for example, unearths oil, metals and mineral, while Argentina sells soybeans, corn and wheat. Vietnam excels at manufacturing.

Because of this diversity, their stock returns tend not to move in lock step with those in developed and emerging markets, Mr. Papageorgiou of Acadian said. They can zig when the developed world zags. And returns in the frontier regions even tend not to track one another.

“Eastern European markets will trade in line with each other but very differently from the African countries,” Mr. Papageorgiou said. Thus, a small frontier allocation can provide diversification in a portfolio.

All of this does not mean that these locales have become low-risk. “Some people think that noncorrelation means that frontier markets always will be up when everything else is down,” said Gregg I. Wolper, a senior fund analyst with Morningstar. “That’s not true. They’re not a miracle drug. In the bear market, they got hit hard, so it’s not that they’re protected.”

Some frontier countries remain more vulnerable to corruption and political crises than the typical developed market, said Darrell S. Zechman, a Chicago-based consultant with Towers Watson Investment Services. “They’re highly volatile, so you need a very long time horizon,” Mr. Zechman said.

Even so, he said he agreed with arguments for investing in them. “They’re relatively diverse, populous and growing fast,” he said. “They’re not fully established, but they do merit consideration. People were saying the same kinds of things about emerging markets 15 years ago.”

So what might be an appropriate frontier allocation for a long-term investor who already has a diversified portfolio and can tolerate the risks? Estimates from money managers who operate in the sector range from 2 to 5 percent.

But Mr. Wolper of Morningstar was skeptical about investing anything at all. “International funds and emerging market funds put very little money in frontier markets,” he said. “You can build a nice international portfolio without a frontier markets fund.”

Even if you believe that frontier countries will grow far faster than the developed world, you have to deal with the practicalities, including cost, of investing in them, he said. Frontier funds tend to be more expensive than average and have short records. “They could have great potential, but you can’t simply assume that you’ll get great returns,” Mr. Wolper said.

ANYONE who believes that frontier markets will rise relentlessly should recall 1978, said Mr. Kutas at Fidelity. That was when Time magazine named Deng Xiaoping, who led the overhaul of China’s economy, as its Man of the Year.

“That’s when the world came to the idea that China was opening, and that’s quite a few years ago,” Mr. Kutas said. Since then, the economy has boomed, but the stock market has been on a roller coaster — sagging, for example, during and after the Asian financial crisis that began in 1997. “What I’m saying is that a lot of these trends are true, but you can go through periods of sharp volatility.”
http://www.nytimes.com/2010/07/11/business/mutfund/11frontier.html?pagewanted=1&_r=1

paddy_lo:

Lets see if my Negative Headline will attract the mugus in to read this positive New York times article about Nigeria

was trying to make sense of the topic as related to the subject matter - make the writer no try stroll for eatern naija/nd sha

Nice one my guy

^^^^^


a pessimist is someone who complains about the noise when opportunity knocks

Lagos, capital of Nigeria??

Shows how much they know lol.

Where is kobojunkie?

LOL @ OP

I read the headline and my heart sank some more, I have long been thinking when will we get a break and get some gaddem good news out of Nigeria! While this is not the magnitude of good news I have been praying for, it sure gives a better feeling. Thanks OP.

LOL @ OP

I read the headline and my heart sank some more, I have long been thinking when will we get a break and get some gaddem good news out of Nigeria! While this is not the magnitude of good news I have been praying for, it sure gives a better feeling. Thanks OP.

No probs. .Meanwhile here is another good article about Nigeria that came out last week. .this time from Reuters

[size=14pt]Africa prospects lure investors, but is it ready?[/size]


Wed Jul 7, 2010 12:24pm IST
By Matthew Tostevin and Stuart Grudgings

(Reuters) - Africa offers among the world's best investment prospects as emerging markets grow ever more important, although its economies risk being destabilized by the slew of capital they stand to attract in coming years.

[size=13pt]Energy-producing continental giant Nigeria was identified as a top pick by some of the most influential figures in emerging markets finance who spoke to the Reuters Emerging Markets Summit in Sao Paulo last week.[/size]

Africa withstood the financial crisis better than many predicted, and the region's economic growth is forecast at 4.75 percent in 2010. Next year, half of the world's 10 fastest growing economies are expected to be in Africa, and it is now attracting more than just the most intrepid investors.

"The latent interest in Africa is enormous," said Stephen Jennings, chief executive of Russian investment bank Renaissance Capital, speaking to the Reuters meeting by video link from Moscow.

"Before the crisis there were probably 40 people or groups establishing Africa funds. In 3-4 years you'll have 100 Africa funds and the biggest one won't be $2 billion, it'll be $20 billion."


Fund tracker EPFR reports 43 consecutive weeks of net inflows to Africa equities funds, reaching $484 million in the first half of 2010 -- nearly double those to India over the same period.

Africa's advocates say the inflows stand to accelerate rapidly as a dearth of attractive returns in the developed world pulls investors in while a more stable political and economic environment indicates diminishing risks.

MSCI's index of Africa countries outside South Africa, though well off its year highs, is still up nearly 8 percent in 2010. The S&P 500 is more than 8 percent down.

BRIC LINKS

A shift of global economic power to emerging giants such as Brazil, Russia, India and China -- known collectively as the BRICs -- benefits Africa as surging economies seek its resources and push up commodity prices and investment.

Brazil, Russia and India still trail China, which last year became Africa's biggest trade partner, but they have been rapidly expanding trade and putting more money into Africa.

"What's absolutely striking is how much change there's been between the BRIC countries and Africa," said Jacko Maree, chief executive of South Africa's Standard Bank, which is Africa's biggest. "We like to think that the whole story has only just begun."

Brazilian firms with a large African presence may soon issue bonds in South African rand to seize on growing interest, said Standard Bank's chief executive in the Americas, Eduardo Centola.

[size=14pt]NIGERIA TOP PICK[/size]

[size=13pt]Nigeria's market of about 140 million people – nearly three times bigger than South Africa's -- as well as its energy resources and bigger, more liquid markets, makes it the top choice for many eyeing Africa.

On the Goldman Sachs' growth-environment index, which measures a mixture of economic and social development indicators, Nigeria's score has nearly doubled over the past decade.

"If it were to show the same increase in its growth-environment score over the next decade, many investors will look back and say why the hell didn't I invest in Nigeria," said Goldman Sachs' global head of economic research Jim O'Neill, who coined the term BRICs.[/size]

Ethiopia and Rwanda are among the smaller African economies seen as promising. They show how previously ignored countries scarred by war are emerging as possible investment magnets alongside those such as Ghana, a relatively stable democracy which is soon to become an oil producer.

There are risks, though, with concerns over political stability even in bigger economies such as Nigeria and Kenya.

Africa experts underline the fact that new mineral riches have rarely been shared widely, and suggest reliance on such income for national coffers could discourage establishing tax bases that would put states on a sounder footing.

"Where I think the real caution has to come in is the quality of the growth," said Patrick Smith of the Africa Confidential newsletter. "It would be pretty silly to say success is certain."

A big influx of investment funds could in itself pose a problem for African countries less prepared to cope than those in other rapidly growing regions that have felt the pain of such flows in the past.

"Africa has no experience of huge capital inflows," said Renaissance's Jennings. "Under the scenario I'm painting, the capital inflows will be way above and beyond the ability of those countries to absorb them."

Most African countries have small, illiquid markets and little financial infrastructure, raising the chances of economic distortions and asset bubbles that could lead to currency crises and long-term damage.

"People look at how certain African economies have been getting their act together and there is a risk you will get significant capital inflows," said Mohamed El-Erian, chief executive of PIMCO, the world's largest bond investor.

"That will provide quite a challenge to policy makers."

http://in.reuters.com/article/idINIndia-49935620100707

Good, Good, Good goood! It has started happening again.

The radar is coming back to Nigeria. We better get it right this time.

I was saying earlier that since Jonathan took over, Investors have started ringing the lines at a very interesting rate.

Now, I don't think it has much to do with Jonathan himself. Maybe all the negative publicity we got from the time of Yar Adua's sickness, Mutallab and the Jos Crises got a lot of people focused on Nigeria. Since they've observed us come out of the crises peacefully, they are probably  thinking we might finally be able to get our acts right. I'm not sure what exactly is creating the interest, but it sure is there.

However, most of these investors are all going to wait till the outcome of 2011 to make a decision. If there is a change of government, they'd probably stay away. Also , they would only come in if we have our regulatory framework right.

Youthful exuberance. These forecatsters are at it again. WSJ once rated Nigeria stock market as the best ROI in the world, I wonder if  they would say it again today? Investment 101 a paid-out dividend of a penny is worth more than a rosy expected return of $100. ie reality VS simulated scenario.

@Paddy Lo

Go to Google Archive and read articles about Nigeria from the 70s. Same story with Western fund managers extolling the growth potential of Nigeria. The reality is that Nigeria's potential has never been in doubt, we just have an uncanny ability to create chaos out of opportunity.

well duh!! Africa is the final economic global frontier. The question is, are we ready to shift out of 1st gear?

paddy_lo:

Thanks bro.  . . .the ppl on this site are so steeped in default negativity,they cant see any of the good things happening around them

Heres a quote from a speech given recently by our former Finance Minister OKonjo Iweala. . .

[size=14pt]“profit lies where the gap between perception and reality is greatest.” [/size]

Its really a shame they cant see. . .

YOU are a very WISE person. . . Someone who spots diamonds in the rough

Continue to remain POSITIVE about NIGERIA no matter what "they" say


PLEASE POST MORE. . . THANK YOU 

By the way, if you need help let me know.

paddy_lo:

[b]This is not your Nigeria of the 1970. . .

Nigeria today has managed to achieve macro-economic stability for 10 straight yrs, . .

Something it has never done in its history before

It has managed to ammass $40billion in external reserves(in just 5yrs or so)
Imagine what the next 10 yrs hold

It has managed to push through reforms like an independent central bank, Pension reform that has built up long term assets of over $10billion in only 4yrs

Bank reforms. . .that has made our banks like UBA to be colonizing Other African Economies
In effect a Nigerian owned Multinational

Debt Market Reform that means that Nigeria has a Soveriegn yield curve for the first time in History(Issued by the DMO)
u now have 2yr,5y,10yr and 20yr FGN bonds with turnover that exceeds N4trillion a month

Democratic reforms that will only get better in 2011

Professional military for 10yrs now that is willing to obey our constitution

and a form of decentralization of decision making that is allowing states like Lagos,Rivers,Kwara and crossriver amongst others, partner with private sector to push necessary reforms in their respective state

In 1970 if the world financial crises that happened in 2008 had taken place. . .u would have seen Nigeria record Negative growth. .
But we didnt that tells u it is different this time. . (we are one of a few handful of countries in the world that actually posted positive GDP growth rates for 2009)

In Fact we just laid the foundation we never had. . .the payoff begins now
[/b]

You are right, Nigeria has done really well in the last 10 years. The turning point was when the $36 billion foreign debt was paid off.
It put Nigeria back in control of it's econony, free from the deadly medicines of the IMF and the likes.

i laufuuuu in engrish

Nice one

Tuyis:


You are right, Nigeria has done really well in the last 10 years. The turning point was when the $36 billion foreign debt was paid off.
It put Nigeria back in control of it's econony, free from the deadly medicines of the IMF and the likes.

abi ooo, 

@ Poster . Keep doing the good work .

We still have a long way to go but i have come to realize that though we are not where we are supposed to be , but judging from where we were coming from; we've gone some distance.

We now need to do away with the jokers who parade themselves as leaders, and take our destiny in our hands.

@OP,
Keep it up with the positive posts.
Granted, lots of reforms need to be done still, but we are already on track.

Now the nation has put in place a sovereign wealth fund, a pension scheme, a vibrant bonds market, major reforms in critical sectors, energy, infrastructure, etc . . . It's not a day job. We should all participate in the process, rather than singing the old song of 'dem wan chop money', bla bla bla.

I saw this too i Was VERY Happy at this post whih confirms my theory of "no matter what Nigeria is destined for greatness" you may say the path is a bit rough at this time But our Economy is flying
What made me so happy even more is that her on NL when people CLEARLY see good news they would start criticizing it and when they see bad news they would start criticizing it also and rain all insults they know even when i posted a good news related to our economy i was insulted, people here need to get a brain!
And to people who think South Africa to Nigeria is like brazil to Sudan with so much gap can keep quiet a little bit as a south african said he feels safer in Lagos,
Yes we are the Brazil of the world but this right here made my day “I get people asking, ‘Who’s the next Brazil?’ ” said Adam J. Kutas, manager of the Fidelity Emerging Europe, Middle East and Africa fund. “I answer without hesitation that it’s Nigeria,” and this also
many investors will look back and say why the hell didn't I invest in Nigeria, am telling you this would be the words of major people and firms in the next 5-6 years!!!

Paddy_lo is now officially my buddy (good thing you decided to steer clear of N-------g )

Paddy_Lo i always agree with your views be it defence or economice but strongly disagree with you on that ba.stard called Jonathan who MUST go by May 29 2011

I still haven't seen comments from Kobojunkie.

Cross Rivers state is known today as Nigeria's tourism destination because of the light in which its government and Inhabitants painted it.

Lets not allow the many negatives overshadow the positives.

xterra2:

Paddy_Lo i always agree with your views be it defence or economice but strongly disagree with you on that ba.stard called Jonathan who MUST go by May 29 2011

No matter what wrong your father does, you can never refer to him in such terms.

Nothing new here.

Lagos is always safer than Joburg.

We dont need NYtimes to tell people to invest in Nigeria.

Nigerians needs to invest in their own country first.

It is NIGERIANS who will remain when the investors run away like they did in 2007 when things went burst.

[size=14pt]Unilever to invest 100milion Euro in Nigeria [/size]

Jul 14, 2010 By Laja Thomas

Unilever will be investing over one hundred million Euro in Unilever Nigeria within the next 3 years, Paul Polman, Unilever Global CEO, said during his visit to Nigeria 7th and 8th July.The Unilever boss who believes that there are opportunities in Nigeria,said the company would double its business in the country and make Nigeria the biggest and best Unilever business in Africa by setting standards on how business is done.

He promised that the company would continue to improve the lives of the people and grow its business applying the best standards, adding, “ Everyday Unilever will be a little bit better than its competitors in quality, cost, environmental impact and other parameters.”

Paul Polman, who was accompanied on his visit by Harish Manwani (President Unilever AAC) and Frank Braeken (SVP Unilever NAMCA) and others, said further that “about 50% of Unilever’s global business growth is in the emerging markets of which Nigeria represents a key player in the African continent. Unilever Nigeria, which grows in double digit a head of competition has been rolling out innovations that meet consumers’ needs and improve their lives.”

Paul Polman also declared that: “Unilever believes in doing the right thing for the long time to be sustainably successfully” as a business and that this applies to all the company’s businesses all over the world.

As such Unilever has increased investments generally in Nigeria and especially in the areas of research and development, human capital development, advert and promotions, capacity improvement among others.

http://www.proshareng.com/investors/company.php?ref=UNILEVER

http://www.proshareng.com/news/11392

All these opportunities despite having the MOST USELESS GOVERNMENT IN THE HISTORY OF THE WORLD?

Though I utterly hate the Nigerian government with the institutionalized corruption and mediocrity worship, I still wish the country well.