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South Africa’s central bank has disagreed with a ratings decision by Moody’s to downgrade Capitec Bank Limited (Capitec) by two notches, and place it on review for a further downgrade. The central bank says it respects the independent opinion of rating agencies but that it does not “agree with the rationale given in taking this step”. Two reasons are given for the rating action: a lower likelihood of sovereign systemic support based on decisions recently taken in relation to African Bank Limited (African Bank), and heightened concerns regarding the risk inherent in Capitec’s consumer lending focus. “With regard to the first point, it is important to reiterate that the approach taken by the SARB to any resolution to address systemic risk will always be based on the circumstances and merits of the particular prevailing situation. Decisions will also be informed, as was the case with African Bank, by principles contained in the Key Attributes for Effective Resolution Regimes proposed by the Financial Stability Board (FSB), which have the objective that a bank should be able to fail without affecting the system,” notes the central bank in an official statement. “This is in keeping with evolving international best practice. In the case of African Bank bond holders and wholesale depositors are taking a 10% haircut, which is generally regarded as being very positive given that the trades following the announcement of African Bank's results were taking place at around 40% of par. Therefore in fact substantial support was provided, not reduced. Moreover, all retail depositors were kept whole and are able to access their accounts fully,” it adds - According to the Hong Kong Monetary Authority (HKMA) credit card receivables increased by 2.1% in the second quarter to HKD112, after a reduction of 6.7% in the previous quarter. The total number of credit card accounts edged up by 0.7% to around 16.8m.The rollover amount, which reflects the amount of borrowing by customers using their credit cards, increased by 2.9% during the quarter to HKD19.2bn. The rollover ratio also rose marginally from 17.0% to 17.1% in the same period. The charge-off amount increased to HKD569mduring the quarter from HKD528m in the previous quarter. Correspondingly, the quarterly charge-off ratio rose to 0.51% from 0.46% in the previous quarter. The amount of rescheduled receivables transferred outside the surveyed institutions’ credit card portfolios reduced to HKD94m from HK$109m in the previous quarter. The delinquent amount increased to HKD249m at end-June from HKD239m at end-March. However, the delinquency ratio remained the same at 0.22% because of an increase in total card receivables. The combined delinquent and rescheduled ratio (after taking into account the transfer of rescheduled receivables mentioned above) edged up to 0.29% from 0.28% during the same period - Harkand has been awarded a contract to support Apache with inspection, repair and maintenance work (IRM) as well as light construction (LC) across their assets in the North Sea, following completion of a competitive tender exercise. The award includes the provision of vessels, ROV and diving services for a three-year period, plus two one-year options. The firm will also support offshore marine construction contractor EMAS AMC who have been awarded a separate contract for pipe lay and heavy construction as part of the same tender process. Harkand Europe managing director, David Kerr, said: “This contract is an important step in strengthening our close working relationship and growing our North Sea business with Apache.
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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