Frontier Markets
July 5, 2011 3:57 pmGoldman Sachs launched it’s “Next 11” fund investing in developing countries such as Pakistan, Turkey, Bangladesh, Egypt, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea and Vietnam. The success that BRIC’s have sustained and concerns about their ability to maintain similar future growth has some fund managers looking further into frontier markets. Castlestone Management launched a Next 11 equity fund for the same reason.
HSBC has launched a new fund investing in six countries called the CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa).
Some of the investment motivation for the countries is based on low labour cost with improved working conditions. According to a Fidelity Investments portfolio manager, Ayesha Akbar, 10 years ago nobody was concerned about China’s Economic status. Now it is set to become bigger than the U.S. As a result, China is becoming mainstream. Fidelity believes Mexico, Indonesia, Nigeria and Turkey (MINT) could be the next countries to follow the BRIC.
Both the CIVET and MINT country qualities are put together based on diverse geographies, large young demographic populations and growing urbanization. Mexico has a large, underleveraged young demographic population. Philip Poole of HSBC Global Asset Management marco investment strategy says, growing urbanization means the populations moves from less productive rural settings to more productive urban industries fuel GDP growth. Poole thinks Indonesia will undergo a similar urbanization in the next few years. James Norton of Evolve Financial Planning says, “there is zero correlation between GDP growth and stock market growth based upon 110 years worth of data.”
Slim Feriani, Chief Executive of Advanced Emerging Capital, says frontier markets are similar to where emerging markets were 20 years ago. Akbar claims political risk is the biggest issue. Libya, Egypt and Turkey are the most recent examples of negative economic impact from politics.
It is interesting to read how the investment managers and analyst are strategizing investment targets. Based upon our professional experience within many of these markets and the destructive political impact we have seen, we believe it is particularly important to have a quick exit strategy and high profit margins before it is worth the risk to invest in many of the Next 11. I remember when Honduras kick the President out of the country and unemployment shot up to 30%. Cruise lines stopped coming. Negative press dominated the news. We had our first project in Roatan come to a grinding halt along with the market.
Related to resort real estate, many of these locations offer great adventures and amazing opportunity. Model your financials for a fast exit strategy based upon market support where possible. Real estate internet marketing offers affordable ways to bring emerging destinations to market. Stay tuned for more ways we are leveraging technology, the internet and market analysis for project success.
