Sunday 21st December 2014
NEWS TICKER: FRIDAY DECEMBER 19TH 2014: Scotiabank’s Commodity Price Index dropped -4.8% m/m in November (-6.1% yr/yr) and will end 2014 in a ‘deflationary’ mode, says economist Patricia Mohr. "Significant capacity expansion and the defence of market share by major oil and iron ore producers— against a backdrop of lacklustre world economic growth — account for the softness at the end of the year," she says. Mohr adds that the decision by Saudi Arabia not to reduce output to shore up international oil prices, but instead to allow prices to drop to levels curbing US shale development appears to be having a negative impact on confidence in a wide variety of other commodity as well as equity markets. She predicts prices will fall further this month, but will start to rebound in mid 201 - Jonathan Hill, the EU's financial-services commissioner, says he plans to pursue rules that separate a bank's proprietary trading from retail operations. "The sensible thing to do is to seek to make progress quickly" on the issue, Hill said. "There are still areas of risk in some of the biggest and most complicated banks,” reports Bloomberg- CME Group, said yesterday that it will change daily price limits in its CME Feeder Cattle futures effective today, pursuant to its emergency action authority. The current daily price limit for CME Feeder Cattle futures is $3.00 per hundredweight and will change to $4.50 per hundredweight effective on trade date December 18th Additionally, effective December 19th (tomorrow) these limits will have the ability to expand by 150% to $6.75 per hundredweight on any business day in the event that one of the first two contract months settles at limit on the previous trading day. CME Feeder Cattle futures have been locked limit for five consecutive days as a result of various factors. The change to daily price limits is necessary to ensure continued price discovery and risk transfer, says the CME. Daily price limits for CME Live Cattle futures will remain unchanged at $3.00 per hundredweight. Effective Friday, December 19th, these limits will have the ability to expand by 150 percent to $4.50 per hundredweight in the event that one of the first two contract months settles at limit on the previous trading day - The Straits Times Index (STI) ended +16.42 points higher or +0.51% to 3243.65, taking the year-to-date performance to +2.49%. The FTSE ST Mid Cap Index gained +0.29% while the FTSE ST Small Cap Index gained +0.71%. The top active stocks were Keppel Corp (+2.68%), SingTel (-1.02%), DBS (+2.36%), Global Logistic (-3.21%) and UOB (+0.30%). The outperforming sectors today were represented by the FTSE ST Basic Materials Index (+3.13%). The two biggest stocks of the FTSE ST Basic Materials Index are Midas Holdings (+6.38%) and Geo Energy Resources (unchanged). The underperforming sector was the FTSE ST Telecommunications Index, which declined -0.98% with SingTel’s share price declining -1.02% and StarHub’s share price declining-0.73%. The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (+2.56%), DBXT CSI300 ETF (+0.42%), STI ETF (+0.61%). The three most active Real Estate Investment Trusts (REITs) by value were Ascendas REIT (-0.42%), Keppel DC REIT (unchanged), Suntec REIT (+0.26%). The most active index warrants by value today were HSI23400MBeCW150129 (+7.32%), HSI22600MBePW150129 (unchanged), HSI24000MBeCW150129 (+12.50%). The most active stock warrants by value today were KepCorp MBeCW150602 (+21.95%), DBS MB eCW150420 (+29.29%), DBS MB ePW150402 (-18.03%) - Spain’s Director of Public Prosecutions, Eduardo Torres Dulce, has resigned from the post for “personal reasons”, Spanish daily El Mundo reported this morning. A spokesman for the Public Prosecutor’s office confirmed the news by telephone to The Spain Report, saying that Mr. Torres Dulce had informed Justice Minister Rafael Catalá of his decision: “but that it perhaps would not come into effect until they find a replacement”. That decision is taken at cabinet level. The next cabinet meeting for Rajoy’s government is tomorrow morning - Hedge funds including Marshall Wace, Odey Asset Management and Lansdowne Partners are shorting OTP Bank Plc, a Hungarian lender with a Russian subsidiary whose shares have fallen almost 6% this month reports Albourne Village. All three London-based funds took or increased their position this month in OTP, Hungary’s largest lender, according to data compiled by Bloomberg. The ruble rose today in Moscow after plunging as much as 19%against the dollar yesterday, when Russia’s central bank increased interest rates to 17% percent from 10.5 percent in an attempt to stem the decline. The ruble is down 52% this year and has taken a disproportionate beating in the wake of sanctions and falling oil prices. The country still has the third largest currency reserves in the world and so is unlikely to default. According to Eric Chaney, Manolis Davradakis and Greg Venizelos from AXA IM’s Research and Investment Strategy team Russia will likely resort to fiscal stimulus to contain the risk of social and political unrest. Capital controls, political unrest and even default on private hard currency debts are possible outcomes they say. They credit default swaps market is pricing a one-third probability of sovereign default within five years - Indonesia is ramping up financing for its $439bn development program, planning an almost fivefold increase in sales of project sukuk. The government is seeking to raise IDR7.14trn rupiah (around $568m) from notes that will fund particular construction ventures next year, compared with IDR1.5trn this year, which say local press reports, will help finance its estimated spending of about IDR5,519trn from 2015 to 2019 to build roads, railways and power plants.
Michael Levy, investment manager, Baring Frontier Markets Fund,  says a steady flow of new companies to the market marks steadily increasing liquidity in the frontier markets asset class. Michael Levy, investment manager, Baring Frontier Markets Fund, says a steady flow of new companies to the market marks steadily increasing liquidity in the frontier markets asset class. Photograph kindly supplied by Barings, November 2013.

Barings makes case for frontier markets in 2014

Wednesday, 27 November 2013
Barings makes case for frontier markets in 2014 Frontier markets such as Argentina, Kenya, Nigeria, Saudi Arabia and the United Arab Emirates have delivered strong investment returns in 2013, and the asset class is set for continued strong performance in 2014, according to international investment firm Baring Asset Management. http://www.ftseglobalmarkets.com/media/k2/items/cache/9392051d1c6437a4aa44d9c49269a7c6_XL.jpg

Frontier markets such as Argentina, Kenya, Nigeria, Saudi Arabia and the United Arab Emirates have delivered strong investment returns in 2013, and the asset class is set for continued strong performance in 2014, according to international investment firm Baring Asset Management.

The firm sees every reason for investors in such markets to be positive as they look ahead to next year. Michael Levy, investment manager, Baring Frontier Markets Fund, explains why: “Frontier markets are inefficient markets at an early stage of development, providing many mispriced investment opportunities, and we expect the drivers which have supported markets in 2013 – potential for long-term structural growth combined with a low correlation to other asset classes – to remain intact. 

"We are encouraged by the political developments we have seen this year, which show that the countries in our investment universe continue to move towards economic liberalisation and democracy, albeit at a slow pace.”



Levy notes the performance of the MSCI Frontier Markets Index, which has returned +16.4% in US dollar terms to mid-November, reflecting the prospect of long-term structural economic and corporate earnings growth and continued allocations from investors attracted by low correlations to other asset classes.  The performance compares very favourably with a 7.1% decline in the MSCI Emerging Markets Index over the same period.

Two asset classes where Barings sees particular investment potential are new energy opportunities and healthcare companies.  The former encompasses exceptionally large oil and gas deposits in Kurdistan, Northern Iraq, which are likely to be brought to market shortly.  The latter reflects the rapid growth of generic pharmaceuticals production in many frontier economies as well as the increasing use of private healthcare provision to supplement public healthcare, particularly in the Middle East. 

Al Noor Hospitals, for instance, is one of the largest private healthcare providers in the United Arab Emirates and a core holding in the Baring Frontier Markets Fund.

In terms of country performance, Middle Eastern markets including the UAE stand out as one of the better performing regions, according to Barings, as the banking sector in the UAE has benefited as a safe haven at a time when continued instability has impacted some other countries in the region. 

In Africa, a continent where Barings sees the strongest long-term equity market potential, elections in Kenya have resulted in a more market-friendly government coming into power – evidence of the wider, long-term trend towards democratisation across the frontier market universe.  Nigeria’s Central Bank also continues to make good progress in managing the currency and inflation, and investments made in security and customer identification augur well for the development of Nigeria’s retail banking market, in Barings’ view.

Levy adds: “From an investment perspective, a steady flow of new companies to the market marks steadily increasing liquidity in the frontier markets asset class, and we expect further progress here next year, with potential for privatisations in Romania for example in 2014.  We recently invested in a company which has operations based in Laos, and increasingly, other Asian frontier markets, and continue to monitor new investment opportunities very closely.”

Barings launched its Frontier Market Fund in April this year, investing in markets outside developed and emerging market benchmarks.  In the six months to the end of October 2013, the Baring Frontier Market Fund has delivered a return of 9.48% versus 8% for its benchmark, the MSCI Frontier Markets Index.  The portfolio is diversified across the major Frontier markets, with significant exposure to Nigeria, the UAE, Saudi Arabia, Qatar, Kuwait and Kenya.  The top three sector holdings are Financials, Telecoms and Consumer Staples.

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