Dan Keeler, editor of Frontier Markets on Wall Street Journal, co-ordinates the Journal's coverage of the world's frontier markets. Launched in early 2014, WSJ's frontier market coverage brings together a broad range of news and analysis, providing readers with a deeper understanding of some of the world's most dynamic and fast-growing economies.

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Picture: ISTOCK
Picture: ISTOCK

A sweeping roundup last weekend of more than five dozen princes, ministers and prominent businessmen in Saudi Arabia marks a dramatic escalation of crown prince Mohamed bin Salman’s effort to consolidate power and accelerate far-reaching change in the kingdom, Margherita Stancati and Summer Said report. Saudi officials said the crackdown stemmed from a probe aimed at stamping out corruption. It touched some of the most widely known people in the country, including Prince al-Waleed bin Talal, an international tycoon who is one of the richest men in the world.

Prince Mohammed bin Salman. Picture: REUTERS
Prince Mohammed bin Salman. Picture: REUTERS

While many commentators focused on the internal machinations of the Saudi royal family, Hasnain Malik, global head of equity research at the specialist frontier and emerging markets investment bank Exotix Capital, took a different view: “As unprecedented and controversial as it may be, this centralization might also be a necessary condition for pushing the austerity and transformation agenda, the benefits of which very few investors are pricing in,” he noted.

DJ Peterson, founder of research firm Longview Global Advisors, said Mohammed bin Salman — also known as MBS — is taking a leaf out of Xi Jinping’s and Vladimir Putin’s books, using a fight against alleged corruption to “realign economic interests and consolidate political control.” Describing the move as “highly authoritarian”, Peterson suggested that, “rather than liberalizing this closed system, MBS may be reordering it according to the interests of his clique and seeking to reclaim assets to plug the budget deficit.”

Jason Turvey, a Middle East analyst at Capital Economics, believes the severity of the crackdown could spook investors. “Foreign investment could be deterred, especially as much of it relies on partnerships with firms owned by those being detained,” he said.

The crackdown intensified later this week with the detention of hundreds more individuals, Nicolas Parasie writes.

Saudi Arabia is one of the frontier markets that Asha Mehta, portfolio manager of Acadian’s frontier strategy, believes has the most potential for strong performance next year. “It’s been relatively flat this year, [which] contrasts with frontier returns at 24% overall, but that creates opportunity for mean reversion and potentially a stronger return profile next year,” she told the Journal.

For more excerpts from our interview with Mehta, see below.

Bond investors are betting that the strong economic performance of frontier markets will enhance their returns, Emese Bartha reports. According to Marco Ruijer, lead portfolio manager for frontier and emerging market debt hard currency at Netherlands-based fund manager NN Investment Partners, frontier market debt is less vulnerable to macroeconomic scenarios that involve rising US interest rates because frontier market debt has low correlation with US treasuries and tends to be of relatively short duration. Most frontier markets are still at the very early stages of economic, political, financial, institutional and business development, and therefore have attractive long-term prospects, Ruijer added.

The Nigerian government’s efforts to broaden its revenue base in response to the recent oil-price slump have been largely unsuccessful, Moody’s said this week. The ratings firm downgraded Nigeria’s long-term issuer and senior unsecured debt ratings, adding that the government’s finances remain exposed to further shocks, interest payments are relatively high compared to revenues and, despite spending cuts, the government’s deficits remain high.

Moody’s view contrasts sharply with comments this week by Nigeria’s President Muhammadu Buhari. In a speech accompanying the release of the government’s budget, Buhari forecast Nigeria’s economy would grow by 3.5% in 2018 and noted that the currency had stabilized, Obafemi Ordain reports.

“By the second quarter of 2017, exports significantly outpaced imports, resulting in a trade surplus of 506.5 billion naira ($1.4 billion),” Buhari said, although he acknowledged that a recent improvement in external reserves was driven by the increase in oil prices.

Sub-Saharan African presidents are back in the news this week. Zimbabwe’s President Robert Mugabe fired his deputy, Emmerson Mnangagwa, accusing him of disloyalty and setting the stage for Mugabe’s wife, Grace, to succeed him as president.

Robert Besseling, executive director of risk consultancy EXXAfrica, said Mugabe’s move increased the chances of a coup in Zimbabwe. “[Earlier this year] Mnangagwa had become the frontrunner in the contest to succeed Mugabe as president after he secured the open support of the Joint Operations Command (JOC) group of senior military, security, and intelligence chiefs that effectively runs the country,” Besseling said. “There are reports of unusual troop movements in the capital Harare, which have fuelled speculation of a military coup to oust the president or to arrest Mnangagwa,” he added.

The Democratic Republic of Congo’s electoral commission announced a new date for the long-delayed election to replace Joseph Kabila. The electoral commission set December 2018 as the date for the delayed presidential election. The electoral commission had previously said the poll couldn’t take place until mid-2019.

In Zambia, opponents of President Edgar Lungu reacted angrily to his having warned the country’s Supreme Court not to interfere with his plan to stand for reelection in 2021. Lungu believes he is eligible to stand for what would effectively be a third term because the first term of his presidency began not through an election but after the death of his predecessor, Michael Sata.

Favorable weather conditions in Uganda are helping to boost the economy of Africa’s leading coffee exporter, Nicholas Bariyo reports. According to the IMF, recovering agricultural production will help propel the country’s economic expansion to 5% this year, up from last year’s 4%. It’s more encouraging news for the East African nation, which saw its coffee exports jump 39% to hit a record 4.61 million bags in 2016-17 season.

Uganda, which also cultivates a range of other agricultural products, including cotton, cocoa, tea and corn is expected to maintain inflation around the medium term target of 5%.

Vietnam’s recent campaign against activists and dissidents, which human-rights groups say is the largest and most persistent crackdown in the communist state in years, was in the spotlight this week as regional leaders gathered in the country for the annual Asia Pacific Economic Cooperation summit, James Hookway writes.

Amnesty International says Vietnam is currently holding at least 84 political prisoners or dissidents for crimes such as “spreading propaganda against the state” or “abusing democratic freedoms.” In many cases they have been prosecuted for posting critical comments on Facebook. The latest blogger to be convicted, a university student named Phan Kim Khanh, was given a six-year prison sentence last month.

Venezuelan President Nicolas Maduro. Picture: HANDOUT VIA REUTERS
Venezuelan President Nicolas Maduro. Picture: HANDOUT VIA REUTERS

The US Treasury Department sanctioned 10 current and former Venezuelan government officials on Thursday as part of the Trump administration’s broader crackdown on the troubled Latin American country, Ian Talley and José de Córdoba report. The Treasury accused the officials of subverting democracy and said the individuals are “associated with undermining electoral processes, media censorship, or corruption in government-administered food programs in Venezuela.” As President Nicolás Maduro has steadily consolidated power, the Trump administration has stepped up sanctions pressure on Venezuela, curbing the country’s access to US debt markets and targeting Maduro and his top officials.


Asha Mehta, portfolio manager of Acadian’s frontier markets fund, discussed recent developments and trends in key frontier markets with the WSJ.

WSJ Frontiers: Which countries are you most excited about at present?

Mehta: We continue to like Vietnam. There’s opportunity there at the macro level, given the strong growth in exports, the strong manufacturing base, its effectiveness in attracting FDI. On the consumer side, Vietnam hit a five-year high in terms of consumer confidence. So there’s positive sentiment and [the benefits of its] limited socio-political risk still hold.

Another market we like is Saudi Arabia, which has made tremendous strides in terms of liberalizing its market, and that could be a catalyst in 2018 for a stronger rally.

One of the reasons we like both Vietnam and Saudi Arabia is that they are both liquid markets with a lot of breadth, both at the security level and the industry level. So even though the markets overall have expensive valuations, within the markets there is ample opportunity to find stocks that offer high growth, strong quality and are trading at a meaningful discount.

WSJ: You also like Bangladesh. What do you see there that’s appealing?

Mehta: Bangladesh is similar to the Saudi and Vietnam story. It’s got breadth within the market and liquidity. It’s been a relatively calm market in terms of volatility, and it’s been a strong performer. Year-to-date it’s up 20%, so and it’s somewhat expensive, but again because of the breadth of we find opportunities. It’s got positive momentum and strong corporate health. We’re seeing strong quality and growth characteristics from companies within bangladesh.

WSJ: What are the key themes you’re seeing creating opportunity in the frontier markets?

Mehta: Across many of the most significant markets, reform and positive structural change are strong drivers of performance. For example, removing capital controls and reforming the tax system created tremendous momentum for Nigeria. In Argentina, you’ve seen a move away from protectionist policies, the capital gains tax reform and [erosion of] capital controls. In Saudi Arabia, as I mentioned, reform is a significant theme.

WSJ: Argentina’s been one of the best performers this year. How has that come about?

Mehta: I’ve been surprised by how well the market’s done year-to-date. I had a view that they weren’t going to get the upgrade [by MSCI to emerging-market status] this year. I was right about that but I was wrong in terms of what that meant for market impact this essentially had no impact on the market.

What’s driven this performance? Number one is simply political developments. President Mauricio Macri’s gotten some key reforms through and the corporate sector is strongly supportive of his policies. Another driver was a tax amnesty for undeclared assets of individuals within Argentina. I heard [from] the Argentine exchange that one half of the GDP of Argentina was declared. All of this money that had previously been undeclared is being put to work [with] a good amount going into the local market.

I have a relatively optimistic outlook for Argentina in terms of corporate fundamentals and macro strength, longer term. The valuations are very high, though. There are few markets that stand out as potentially facing a correction as much as Argentina does.


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