Welcome to Exotix Capital's developing markets round-up newsletter, which is freely available and therefore not classified as research under MiFID II.
In this edition, we delve deeper into the crisis of identity and confidence in frontier and emerging markets. Equity Strategist Hasnain Malik argues that this is a crisis of confidence in the process, rather than the opportunity - and examines why frontier and small emerging countries are of interest in the first place.
But first, all eyes are on Nigeria's general election on Saturday — absent reliable polls, we think the race could be even tighter than in 2015. In the sections below, Hasnain Malik, Senior Economist Christopher Dielmann and Banks Analyst Olabisi Ayodeji analyse the implications of the election for the economy and markets.
ELECTION PREVIEW Nigeria election: Status quo versus a pro-market push
The Nigerian presidential election takes place on Saturday and there is no clear favourite. The incumbent President Muhammadu Buhari (of the All Progressives Party, APC) is set to face off against former Vice President Atiku Abubakar, widely known as Atiku (of the People’s Democratic Party, PDP); both are northern Muslim candidates.
The current vice president, Yemi Osinbajo (a Christian from the southwest), who is, arguably, both more popular and more technically inclined than the president, will face an equally strong contender in Peter Obi (a Christian from the southeast and a former governor of Anambra State), who is running alongside Atiku. Ultimately, both candidates’ choices of vice president should be seen as a positive, but also provide insight into the likely platforms of each presidency, something that is often difficult as Nigeria’s political parties have frequently been accused of lacking defining ideals rather than providing platforms for individual leaders to emerge from.
Throughout 2018, there has been a multitude of defections across party lines by members of the APC and PDP in order to consolidate individual power. Given that the challenger Atiku and his key backers were the key backers of the incumbent Buhari in 2015, we believed it was unrealistic to expect material deviation in manifesto or ultimate policy implementation. However, in recent weeks, greater differentiation in policy promises has emerged than we previously expected – status quo Buhari versus a pro-market push Atiku.
BLOG Frontier-Emerging strategy: Benchmark, identity and confidence crises
We have not encountered such a lack of confidence in the investment process, the definition of the investment mandate or the choice of benchmark equity index in our institutional clients in over a decade of conversation with them.
This is our impression after the three months of meeting over a hundred individual fund managers and analysts.
This is particularly striking given that there is consensus that the markets they invest in, whether notionally termed ‘frontier’ or ‘small emerging’, are, in general, very attractively valued and the global environment is supportive.
Here, we examine why frontier and small emerging countries are of interest in the first place. In the long term, the opportunity for better returns than seen across developed markets should be driven by:
(1) Faster growth in per capita GDP than that seen in developed countries (economic “convergence” as property rights are better protected, human, physical and financial capital is more efficiently mobilised and new technology spreads across borders).
(2)For equity investors specifically, by generally, less sophisticated and liquid markets (which create the opportunity to invest in very good companies at prices that insufficiently reflect their outlook in advance of these markets becoming more discovered, accessible, liquid and efficiently priced).
Kiti covers high yield and distressed bonds in Russia, Ukraine and CEEMEA. Her professional interests revolve around metals and mining, oil and gas, transportation and telecoms sectors. Before joining Exotix, Kiti worked as a buy-side credit analyst at Gazprombank Asset Management in Moscow, covered CEEMEA corporate credits as a desk analyst at Nomura in London and was a senior metals and mining credit analyst at VTB Capital. Kiti has a BSc in Finance and is a CFA charterholder.
Tolu Alamutu BSc Banks Analyst
Covering banks in a number of markets including Nigeria, Ukraine and Kazakhstan, Tolu brings experience from leading the CEEMEA Corporate Credit Research team at Bank of America Merrill Lynch (BofAML), where she covered 50 banks across the region, and previously financial institutions in Western Europe.
Tolu has a BSc in Economics from the London School of Economics and Political Science, and is a CFA Charterholder.
ROADSHOW Safaricom
Senior representatives from Safaricom will be travelling to Singapore and Hong Kong this February and March in a non-deal roadshow, giving exclusive insight into the sector, the strategy and the business.
Ahead of this week's elections in Nigeria, download a free sample from the Developing Markets Guide covering the country's debt structure, and commentary on the political and economic factors shaping its development.
Rising US interest rates not translating cleanly into the EM world (forecast interest rate moves in 2019)
Source: Trading Economics, Exotix and Partners Research
In the news
In or out: Thai Stock Investors Weigh Escalating Political Risk Head of Consumer Research at Exotix, Nirgunan Tiruchelvam, predicts the consumption sector will be “the clear winner” in the run up to the Thai general election, as spending on everything from snacks to posters and alcohol will increase.
The acquisition will be funded through a private debt placement managed by Exotix Capital.
AMLO Plan to Unleash Pension Fund Has Critics Worried Further diversification of Afores is all for the best, said Exotix Latin-America Analyst Rafael Elias, yet for Lopez Obrador’s ambitious new administration, money concerns will only grow and so too will the temptation to raid pension funds.
“It’s positive for the two to merge because this becomes a stronger competitor for Safaricom,” Tracy Kivunyu, Telecoms Analyst at Exotix Capital, said from the Kenyan capital, Nairobi.
Upcoming events
ROADSHOWS
11-15 Feb | Ukraine
Stuart Culverhouse Sovereign Credit & Global Macro
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