Sunday 14th February 2016
NEWS TICKER: FRIDAY, JANUARY 12TH: Morningstar has moved the Morningstar Analyst Rating™ for the Fidelity Global Inflation Linked Bond fund to Neutral. The fund previously held a Bronze rating. Ashis Dash, manager research analyst at Morningstar, says, “The fund’s rating was placed Under Review following the news that co-manager Jeremy Church was leaving Fidelity. Lead manager, Andrew Weir, who has managed the fund since launch in May 2008, remains in charge and is further supported by the new co-manager, Tim Foster. While we acknowledge Weir’s considerable experience in the inflation-linked space, some recent stumbles and below-benchmark returns over time have led us to lower our conviction in the fund. This is currently reflected by our Neutral rating.” - Italian GDP growth looks to have stalled to 0.1pc in the last quarter of 2015, falling below analyst expectations of 0.3% growth. The Italian economy grew by just 0.6% last year having come out of its worst slump since before the pyramids were built. The slowdown will put further pressure on reforming Italian prime minister Matteo Renzi, who has been battling to save a banking system lumbering under €201bn (£156bn) of bad debt, equivalent to as much as 12% of GDP. It is a serious situation and one which threatens Italy’s traditionally benign relationship with the European Union. The EU’s bail in rules for bank defaults seeks to force creditors to take the brunt of any banking failures. Italy suffered four bank closures last year, which meant losses of something near €800m on junior bond holders (with much of the exposure held by Italian retail investors). No surprise perhaps, Italian bank stocks have taken a beating this year, Unicredit shares are currently €3.06, compared with a price of €6.41 in April last year. In aggregate Italian banking shares are down by more than 20% over the last twelve months. Italian economy minister Pier Carlo Padoan told Reuters at the beginning of February that there isn’t any connection between the sharp fall in European banking stocks, as he called on Brussels for a gradual introduction of the legislation. He stressed that he did not want legislation changed, just deferred - Is current market volatility encouraging issuers to table deals? Oman Telecommunications Co OTL.OM (Omantel) has reportedly scrapped plans to issue a $130m five-year dual-currency sukuk, reports the Muscat bourse. Last month, the state-run company priced the sukuk at a profit rate of 5.3%, having received commitments worth $82.16m in the dollar tranche and OMR18.4m ($47.86m) in the rial tranche. Meantime, Saudi Arabia's Bank Albilad says it plans to issue SAR1bn-SAR2bn ($267m-$533m) of sukuk by the end of the second quarter of 2016 to finance expansion, chief executive Khaled al-Jasser told CNBC Arabia - The US Commodity Futures Trading Commission (Commission) announces that the Energy and Environmental Markets Advisory Committee (EEMAC) will hold a public meeting at the Commission’s Washington, DC headquarters located at 1155 21st Street, NW, Washington, DC 20581. The meeting will take place on February 25th from 10:00 am to 1:30 pm – Local press reports say the UAE central bank will roll out new banking regulations covering board and management responsibilities and accountability – Following yesterday’s Eurogroup meeting, Jeroen Dijsselbloem, says that “Overall, the economic recovery in the eurozone continues and is expected to strengthen this year and next. At the same time, there are increasing downside risks and there is volatility in the markets all around the world. The euro area is structurally in a much better position now than some years ago. And this is true also for European banks. With Banking Union, we have developed mechanisms in the euro area to bring stability to the financial sector and to reduce the sovereign-banking nexus. Capital buffers have been raised, supervision has been strengthened, and we have clear and common rules for resolution. So overall, structurally we are now in a better position and we need to continue a gradual recovery”. Speaking at the press conference that followed the conclusion of the February 11th Eurogroup, Dijsselbloem also acknowledged that “good progress” has been made in official discussions between Greece and its officials creditors in the context of the 1st programme review. Yet, he noted that more work is needed for reaching a staff level agreement on the required conditionality, mostly on the social security pension reform, fiscal issues and the operation of the new privatization fund. On the data front, according to national account statistics for the fourth quarter of 2016 (flash estimate), Greece’s real GDP, in seasonally and calendar adjusted terms, decreased by 0.6%QoQ compared to -1.4%QoQ in Q3. The NBS Executive Board decided in its meeting today to cut the key policy rate by 0.25 pp, to 4.25%. - Today’s early European session saw an uptick in energy stocks, banking shares and US futures. Brent and WTI crude oil futures both jumped over 4% to $31.28 a barrel and $27.36 respectively before paring gains slightly; all this came on the back of promised output cuts by OPEC. That improving sentiment did not extend to Asia where the Nikkei fell to a one-year low. Japan's main index fell to its lowest level in more than a year after falling 4.8% in trading today, bringing losses for the week to over 11%. Yet again though the yen strengthened against the US dollar, which was down 0.1% ¥112.17. Swissquote analysts says, “We believe there is still some downside potential for the pair; however traders are still trying to understand what happened yesterday - when USD/JPY spiked two figures in less than 5 minutes - and will likely remain sidelined before the weekend break.” Japanese market turbulence is beginning to shake the government and may spur further easing measures if not this month, then next. Trevor Greetham, head of multi asset at Royal London Asset Management, says “When policy makers start to panic, markets can stop panicking. We are seeing the first signs of policy maker panic in Japan with Prime Minister Abe holding an emergency meeting with Bank of Japan Governor Kuroda. We are going to get a lot of new stimulus over the next few weeks and not just in Japan. I expect negative interest rates to be used more in Japan and in Europe and I expect this policy to increase bank lending and weaken currencies for the countries that pursue it”. Greetham agrees that both the yen and euro have strengthened despite negative rates. “Some of this is due to the pricing out of Fed rate hike expectations; some is temporary and to do with risk aversion. In a market sell off money tends to flow away from high yielding carry currencies to low yielding funding currencies and this effect is dominating in the short term”. Australia's S&P ASX 200 closed down 1.2%. In Hong Kong, the Hang Seng settled down 1.01. in New Zealand the NZX was down 0.89%, while in South Korea the Kospi slid 1.41%. The Straits Times Index (STI) ended 1.25 points or 0.05% higher to 2539.53, taking the year-to-date performance to -11.91%. The top active stocks today were DBS, which declined 0.91%, SingTel, which gained 1.13%, JMH USD, which declined 1.39%, OCBC Bank, which gained 0.13% and UOB, with a0.34% advance. The FTSE ST Mid Cap Index declined 0.50%, while the FTSE ST Small Cap Index declined0.31%. Thai equities were down 0.38%, the Indian Sensex slip 0.71%, while Indonesian equities were down another 1.16%. The euro was down 0.3% against the dollar at $1.1285, even after data showed Germany's economy remained on a steady yet modest growth path at the end of last year. Gold fell 0.7% to $1238.80 an ounce, after gold gained 4.5% Thursday to its highest level in a year. Greetham summarises: “Like a lot of people, we went into this year's sell off moderately overweight equities and it has been painful. What we have seen has been a highly technical market with many forced sellers among oil-producing sovereign wealth funds and financial institutions protecting regulatory capital buffers. However, economic fundamentals in the large developed economies remain positive, unemployment rates are falling and consumers will benefit hugely from lower energy prices and loose monetary policy.”

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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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