The Frontier’s Unfolding Rave Formation
The MSCI Frontier Index’s almost 8 percent January gain was five times the core market upswing, as half the constituents rose double digits with only Jamaica down for the month. Battered 2012 European exchanges led the charge, with Bulgaria and Ukraine ahead almost 30 percent and Serbia and Slovenia up over 10 percent, as the Eurozone crisis took a breather and IMF relationships were restored in importance. All Gulf markets entered the positive column with the UAE still on top with a 15 percent jump. Dubai managed another sovereign sukuk despite the unraveling of a $10 billion restructuring deal for a major government-owned group as banks balked at receiving the offer’s immediate twenty cents to the dollar. In the broader Mideast Jordan and Tunisia each advanced 5 percent as the former signaled it would follow Morocco in a proposed Eurobond placement and the latter began talks on a precautionary Fund facility before the killing of an opposition party leader re-ignited unrest. African members continued a winning streak with Kenya and Nigeria surging 60 percent and 75 percent respectively over one year. Recent addition Zimbabwe joined the frenzy (+25 percent) as a revised constitution was agreed before another likely round of presidential elections that will solidify power-sharing while indemnifying post-independence strongman Mugabe against criminal prosecution. The central bank in turn has accepted outside technical assistance to re-establish stability after revealing it had just several hundred dollars left in operating accounts. In Latin America-Caribbean Argentina and Trinidad escaped last year’s negative performance and Jamaica too could rally if an IMF pact can be signed after an extended suspension on fiscal deficit and structural reform misses. Buenos Aires’ single-digit valuations have been cited by mainstream fund managers already heavily positioned in Brazil, Mexico and Andes listings.
In Asia Vietnam (+20 percent) has embarked on state bank and communist hierarchy cleanup including arrests of accused corrupt executives and officials, as political dissidents have also received long prison sentences despite international outcry. A central asset management unit will consolidate bad loans estimated at 15-20 percent of the total as credit and GDP growth slow to a 5 percent clip. Inflation is back in single-digits offering scope for further modest interest rate reduction, as FDI and remittances send reserves to the $30 billion level covering three months’ imports. The currency has been stable after depreciation and listed company foreign ownership limits may be raised as many eye opportunity in next-door Myanmar. After passing a new investment law replacing 1980s norms the central bank will soon get formal independence as it moves from a prevailing deficit financing role. Last year commercial bank deposits jumped despite the meager 10 private credit/GDP figure as an ATM network spread. Both Japanese and multilateral help is now engaged in stock exchange development as dedicated Mekong-area funds line up to flag progress.
