Asia's Frontier Economies - Plenty of Alpha
Thanks to a subscriber for this informative report highlighting the fact that while Africa is often associated with frontier markets, it is by no means the only continent with such high growth opportunities. Here is a section:
The economies in this study vary widely in size, but three already have nominal GDP amounting to more than USD100bn, namely Bangladesh, Pakistan, and Vietnam. Indeed, these three economies have a combined GDP of nearly half a trillion dollars and population of half a billion. These are hefty figures even by EM standards, and the scale alone is sufficient to keep investors interested in the coming years.
Two other economies in this study, Myanmar and Sri Lanka, offer potential scale (both likely to become USD100bn economies by 2018) and fast growth rates. The former is coming out of decades in economic seclusion, while the latter is recovering from a multidecade civil war. Myanmar, if governed prudently, offers exciting opportunities for investors given its large population (64 million), extensive natural resource base, and low wages. Sri Lanka, already endowed with some of the most educated work force in the region and world class tourist destinations, could well be on the cusp of a sharp acceleration in growth, provided governance improves and the security situation remains stable.
Here is a link to the associated report.
While small markets suffer from issues of liquidity they also represent opportunities where improving governance can have outsized results in terms of stock market performance. As an increasing number of countries rise to the challenge of catering to the needs of large young populations by adopting capitalism, embracing globalisation and introducing market reforms, the outlook for growth continues to improve.
Of those covered in the above report Vietnam and Mongolia have some of the more attractive chart patterns. Both have been consolidating above their respective 200-day MAs for much of the year and sustained moves below these trend means would be required to question medium-term scope for additional upside. Pakistan spent much of the period from July ranging and broke out to new all time highs last week albeit helped by a serially weak currency.
While ETFs exist for a number of these markets, they are comparatively small and also suffer from illiquidity. Vietnam remains the most liquid of Asia¡¯s frontier markets. The UK listed, US Dollar denominated, Vietnam Opportunities Fund trades at a 24% discount to NAV and is outperforming the Vietnam market at present.