PORTFOLIO INSIGHT


tain going forward, with President Macri suffering a resounding loss in recent pri- mary elections, leaving his chances of win- ning October’s presidential election slim. With ex- President Christina Kirchner as his running mate, leading candidate Alberto Fernandez is an uncertain prospect and markets are likely to remain volatile with concerns of a return to populist policies.


NIGERIA Nigeria returned to the investi- ble map last year, after recover- ing from a two-year recession. This downturn was primarily driven by the central bank’s reluctance to allow the naira currency to reflect its worsen- ing economic conditions. We spent the large part of five years underweight the Nigerian mar- ket, which has been beneficial. Oil price stability has been key to kick-start- ing Nigeria’s return to growth, experienced alongside improving data coming from the consumer. We played this cyclical recovery through Nigeria’s banks. In 2017, banks were trading at valuations implying most institutions were poised to go bust and this proved to be too pessimistic. However, while the top-down environment looks better today, fragilities remain. This particularly surrounds the currency, which has yet to converge to one official exchange rate. While hopeful, we are also uncertain if President Muhammadu Buhari’s second


term will provide the necessary focus on economic progress. As a result, we dialed down our position sizes.


BANGLADESH


Bangladesh is a country undergoing monu- mental change. Over the past decade, GDP per capita almost doubled to more than US$1,500, foreign direct investment (FDI) trebled and exports compounded in the


We continue to believe


market has trebled in size over the past dec- ade to nearly US$4bn. On our recent trip to the country, we met with companies likely to be beneficiaries of reforms and popula- tion growth dynamics.


there is long-term alpha to be captured in these markets, which is not being accessed by broader global or emerg- ing market investors.


high teens. In addition, adult literacy rates rose from 47% to 73% and power genera- tion tripled – now reaching 90% of the population³.


Economic reforms have the potential to help Bangladesh evolve its export market, as


low-cost manufacturing moves from China to countries such as Bangladesh, Cambodia, Myanmar and Vietnam. In addition, Bangladesh has a burgeoning middle class of nearly 19 million people, which is growing by more than 10% annu- ally⁴. This has profound implications on the growth prospects of most consumer companies. For example, the packaged food


AN UNDER-OWNED AND UNDER- CAPITALISED ASSET CLASS Like much of the emerging world over the past couple of decades, many frontier mar- kets have made huge economic strides, as economies and capi- tal markets liberalised. Despite this, the frontier asset class remains under-capitalised and under-owned. While the poten- tial magnitude of frontier growth is not reflected in the scale of the current stock mar- ket capitalisation, we expect this to change over the coming years.


In addition, frontier markets continue to have a low correlation with emerging and developed markets. We believe this is due to the idiosyncratic nature of the econo- mies, as well as the fact most are not tapped into the global consumption/trade cycle and are more dependent on earlier stage growth. This keeps us excited about the investment possibilities.


1) Source: International Monetary Fund / Haver Analytics.; 2) Source: Haver Analytics.; 3) Source: Haver Analytics / World Bank.; 4) Source: Haver Analytics / World Bank.


Key Risks—The following risks are materially relevant to the strategy highlighted in this material: Transactions in securities denominated in foreign currencies are subject to fluctuations in exchange rates which may affect the value of an investment. Returns can be more volatile than other, more developed, markets due to changes in market, political and economic conditions. Investments are less liquid than those which trade on more established markets.


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