If emerging markets aren’t sufficiently action-packed for your tastes, it may be time to brave new frontiers.
A decade ago, so-called frontier markets were tipped as the successors to Brazil, Russia, India and China.
In 2005, Jim O’Neill at the investment bank Goldman Sachs, the man who coined the phrase Bric four years earlier, identified what he called the “Next Eleven” economies that were set to burst into life.
He pulled together a range of diverse countries from different parts of the world – Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam – and claimed they had the potential to become among the world’s largest economies of the 21st Century.
In 2014, Mr O’Neill narrowed down his frontier market choice to the Mint – Mexico, Indonesia, Nigeria and Turkey.
The past five years have been tough on the concept, with the MSCI Frontier Markets Index returning just 0.70 per cent over the last five years, and falling a painful 13.55 per cent over the last 12 months.
Optimism is picking up again, with the MSCI Frontier Markets Index up 10 per cent over the past three months, following the revival in commodity prices and economic sentiment after January’s stock market rout.
Ghadir Abu Leil-Cooper, head of the Emea and global frontier markets equity team at fund manager Baring, says prospects are also brightening in the Mena region. “It has one of the fastest-growing populations in the world. With one in five between 15-24 years old, this is driving demand for homes, infrastructure, services, health care and education.”
She says Saudi Arabia opening its stock market to international investors next month is a positive step towards providing capital and opportunities for Saudi companies and for future economic growth.
Recent oil price swings have persuaded countries in the region to diversify away from the energy sector, she says. “Dubai becoming a successful tourism and services hub is one such example. Another example is the increase in religious tourism in Saudi Arabia.”
Mr Ghadir’s Baring Mena Fund, which is 30 per cent invested in the UAE, has defied the frontier market struggles to return 21 per cent over five years, according to figures from trustnet.com.
The frontier markets label has been slapped on a broad range of markets that perform in very different ways. Unsurprisingly, the performance of funds targeting this sprawling and volatile sector has been variable.
Schroder ISF Frontier Markets Equity has returned a healthy 22 per cent over five years while BlackRock Frontier Markets has done even better rising 34 per cent.
At the same time, Templeton Frontier Markets fell 6 per cent over five years, and Guggenheim Frontier Markets ETF tumbled 40 per cent.
Again, you should only invest a relatively small proportion of your portfolio, typically no more than 5 per cent, and look to hold your money there for the long term rather than trying to make a quick buck.
This is an exciting investment opportunity but you need time, patience and strong nerves if you want to be crowned king of the wild frontier.
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Greatest of All Time
Starring: Vijay, Sneha, Prashanth, Prabhu Deva, Mohan
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The specs: 2019 Haval H6
Price, base: Dh69,900
Engine: 2.0-litre turbocharged four-cylinder
Transmission: Seven-speed automatic
Power: 197hp @ 5,500rpm
Torque: 315Nm @ 2,000rpm
Fuel economy, combined: 7.0L / 100km
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Monster Hunter: World
Capcom
PlayStation 4, Xbox One
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Blackpink World Tour [Born Pink] In Cinemas
Starring: Rose, Jisoo, Jennie, Lisa
Directors: Min Geun, Oh Yoon-Dong
Rating: 3/5
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MATCH INFO
Manchester City 3
Danilo (16'), Bernardo Silva (34'), Fernandinho (72')
Brighton & Hove Albion 1
Ulloa (20')
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Racecard
6pm: The Pointe - Conditions (TB) Dh82,500 (Turf) 1,400m
6.35pm: Palm West Beach - Maiden (TB) Dh82,500 (T) 1,800m
7.10pm: The View at the Palm - Handicap (TB) Dh85,000 (Dirt) 1,400m
7.45pm: Nakeel Graduate Stakes - Conditions (TB) Dh100,000 (T) 1,600m
8.20pm: Club Vista Mare - Handicap (TB) Dh95,000 (D) 1,900m
8.55pm: The Palm Fountain - Handicap (TB) Dh95,000 (D) 1,200m
9.30pm: The Palm Tower - Handicap (TB) Dh87,500 (T) 1,600m
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Israel Palestine on Swedish TV 1958-1989
Director: Goran Hugo Olsson
Rating: 5/5
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About Krews
Founder: Ahmed Al Qubaisi
Based: Abu Dhabi
Founded: January 2019
Number of employees: 10
Sector: Technology/Social media
Funding to date: Estimated $300,000 from Hub71 in-kind support
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