Citi rating model tops Sri Lanka as most attractive frontier market



Andrew Howell, frontier markets strategist at Citi says Citi has used data to build a rating model for the leading frontier markets, which gives investors a macro view of prospects for 12 countries. The model currently shows Sri Lanka, Romania and Kenya as the most attractive markets based on six key metrics: earnings momentum, price momentum, valuation, macro growth and imbalances and monetary policy. "We thought Sri Lanka was cheap, but it turns out it’s really cheap," Howell noted. "It’s a market you probably want to look at closely."


Another key theme developing in frontier markets investing is increased transparency, according to Andrew Howell. Recent improvements in published data and in analyst coverage has made it possible to measure earnings and share-price momentum, which are key elements in an accurate valuation model, Howell said.


"More analysts’ forecasts are available, companies themselves have just got better at communicating what’s going on, and investor relations functions have expanded quite dramatically," Howell told the WSJ. The downside? "Portfolio managers might find it harder to get an information edge."


Frontier markets are in prime position to pioneer the use of blockchain technologies and to lead in the use and development of cryptocurrencies, according to frontier-focused investment bank Exotix. "We may be at the beginning of another episode of technology leapfrogging as frontier economies move straight to blockchain distributed ledgers and cryptocurrencies as alternatives for weak domestic institutions and capital controls," Paul Domjan, Exotix’s global head of research, said.

Frontier markets are in prime position to pioneer the use of blockchain technologies and to lead in the use and development of cryptocurrencies, according to frontier-focused investment bank Exotix. "We may be at the beginning of another episode of technology leapfrogging as frontier economies move straight to blockchain distributed ledgers and cryptocurrencies as alternatives for weak domestic institutions and capital controls," Paul Domjan, Exotix’s global head of research, said recently.


In an interview with WSJ Frontiers, Domjan argued that blockchains, which underlie cryptocurrencies such as Bitcoin and Ether, could be invaluable in recording contracts, enabling transactions and establishing ownership in countries where institutions are weak. The cryptocurrencies themselves are already proving popular in countries such as Zimbabwe and Venezuela where faith in the conventional currency is low.


Exotix made its prediction in a report on the key themes that could provide new opportunities for investors in frontier markets. Among the other themes it identified were China’s changing engagement with frontier markets from a predominantly extractive relationship to one based more on partnership, and the impact of mobile money—particularly the evolution of e-commerce businesses built around mobile money services.


Another key theme developing in frontier markets investing is increased transparency, according to Andrew Howell, frontier markets strategist at Citi. Recent improvements in published data and in analyst coverage has made it possible to measure earnings and share-price momentum, which are key elements in an accurate valuation model, Howell said.


"More analysts’ forecasts are available, companies themselves have just got better at communicating what’s going on, and investor relations functions have expanded quite dramatically," Howell told the WSJ. The downside? "Portfolio managers might find it harder to get an information edge."


Citi has used the data to build a rating model for the leading frontier markets, which gives investors a macro view of prospects for 12 countries. The model currently shows Sri Lanka, Romania and Kenya as the most attractive markets based on six key metrics: earnings momentum, price momentum, valuation, macro growth and imbalances and monetary policy. "We thought Sri Lanka was cheap, but it turns out it’s really cheap," Howell noted. "It’s a market you probably want to look at closely."


Zimbabwe’s new president this week pledged to respect the results of national elections due this year—even if his ZANU-PF party loses, Gabriele Steinhauser reports. "If we lose elections that’s it," Emmerson Mnangagwa told the World Economic Forum in Davos, Switzerland. "Whatever party wins will proceed to take the reins of power."


The 75-year-old, who took over after longtime leader Robert Mugabe was ousted by Zimbabwe’s military in November, said national elections will take place "earlier than July" and would be free and fair. "This time around, Zimbabwe is open and transparent. We want to have free, fair and credible elections, free of violence," he said, adding that election observers from the European Union would be allowed to monitor the vote.


Since taking power, Mnangagwa has worked to re-engage his cash-strapped country with the international community. Zimbabwe has been under sanctions from Western governments for violently expelling white farmers in the late 1990s and early 2000s. "Zimbabwe is open for business," he said.


Also in Davos, Nigeria’s Vice President Yemi Osinbajo said Africa will replace China as the factory of the world, Pietro Lombardi reports. This shift will quickly generate more employment, he said, but he also cautioned that no African economy would grow quickly enough to meet the needs of the continent’s booming population. What Africa needs, Osinbajo said, is a real partnership with Europe, more investment and policies centered on job creation.


JPMorgan Chase is planning to expand into Ghana and other African nations, chief executive Jamie Dimon said at WEF, Emily Glazer reports. "You’ll see us open in some countries we are not in, in Africa you’ll be hearing about some of that stuff," Dimon said.


JPMorgan attempted expansions into Africa earlier this decade. Around 2012, it was reported that the bank would spread into Ghana, Nigeria and Kenya, but those plans were blocked by US banking regulators. In 2015, bank executives continued to examine a possible African expansion, but regulations continued to limit those plans.


Uzbekistan is continuing its efforts to deepen its engagement with the global community, Lukas I. Alpert reports. Since Uzbekistan’s new president, Shavkat Mirziyoyev, assumed power a year ago following the death of longtime authoritarian leader, Islam Karimov, Uzbekistan has moved to improve relations with its neighbors after years of tensions. Among the changes has been the reopening of border crossings, reestablishment of direct flights between Tashkent and its neighbors’ capitals and a commitment for more cross-border trade.


This week, the country announced it is stepping up its involvement in finding a peaceful solution to decades of war in neighboring Afghanistan, saying that an end to fighting there is key to counterterrorism efforts across the entire region. In late March, Uzbekistan will host a conference in Tashkent involving regional powers as well as representatives from the US, Russia, China and elsewhere to try to establish how to bring the Afghan government, the Taliban and other warring parties into direct peace talks.



 
 
 
 
 
 
 
 
 
 
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