Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Commonsense Investing

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Academics have a habit of creating theories, giving names to them and trying to find problems (may not exist) for the solutions they have imagined.

Other things being equal (capital account convertibility, account opening, taxation, currency rate stability) people would look at their opportunity cost across the border in a different country, not across a beaten down sector across a single stock exchange in a single country. That job for the most part is performed by an institutional or well heeled or passionate investor, not the Joe Public.

The reason why I started invested in more than a single country was the relative cheapness of the alternative opportunities or some time higher growth rate.

Investing is most profitable when buying a perceived problem. Generally this means beaten sector, beaten company, perceived risky geography or too small a company for large funds. The last often is most attractive in a developed country. You need to buy what is a problem for others. Often the small company which has no problems to speak of other than being tiny yet long runway is the best of all. So, I don’t know the name of this type of investing, to invest in the US, China, Australia, Kenya, India, Bangladesh, Nigeria, New Zealand. Maybe there is a word that academics will come up with in the next decade.

Here are some interesting facts about around frontier market investing. Mind you, I am not strictly stereotyped into frontier market investing, I believe that one could, as I do, invest even in the country with highest per-capita income country so long as the opportunity is compelling.

You want the Pyramid to be fatter at the bottom. Frontier markets have favourable demographics

pyramid

You want MCAP / GDP ratio low, its around 100% for most developed countries. Some data seems inaccurate below.

mcap

MCAP yet to grow to the size of GDP, simplistic thumb rule.

MCAP.PNG

Correlation between the investments should be low. This I can vouch from personal experience. I do not like to follow Equity, Gold, Debt, Real Estate for reducing portfolio volatility. Gentlemen may prefer bonds, but I prefer common stocks for 100% of the portfolio allocation. So, it is an added advantage to invest in multiple countries for someone who likes to stay 100% invested in Equity, and Zero cash. I was able to invest in India / NZ / Australia in 2015 when Sensex was down 30% from Peak by liquidating Bangladesh when other countries were not down even 10%.

You want low correlation.

correlation.PNG

A loose definition of frontier market is the country with less than 1% MCSI Emerging Market Index. These countries represent 20% of Global population, 10% of Global GDP but only 2% of Global MCAP. If you wanted to buy 1% of Australian Stock Exchange (Self-listed Monopoly in a country of 23 Million Homo Sapiens), you need to shell out 70 Million USD. If you wanted to buy 1% of NSE Kenya (Self-listed Monopoly in a country of 50 Million Homo Sapiens), you only need to pay 400,000 USD. Qatar has Per Capita of 100K USD, Kenya has Per Capita of 1000 USD, yet both are frontier markets.

 

You want high growth here.

Growth

Frontier markets are off the radar screens of many large institutional investors. The Government Debt position for the frontier markets is in a better shape.

Govt_Debt

There is a disequilibrium between investors perception of country risk (going to the dogs / Taliban) vs actual risk. That is how the contrarians score. Economic freedom of these countries are moving in the right direction.

Freedom

Maximum Wall Street Analysts are applying brainpower studying Emerging Markets (India, China, South Korea, Thailand, Turkey, Indonesia, or the Air Conditioner market), and not enough are studying the Frontier Markets (Kenya, Bangladesh, Pakistan, Nigeria, African sub-continent aka the Water Cooler Market)

EM_FR

India and Philippine investor’s portfolio are least diversified out of their country.

Indian.PNG

Risks to the frontier markets are political, currency, immature institutions, corruption, low liquidity.

Frontier markets are at a very early stage of development. It has been a case of frontier market punching below their weight in the recent two year period, where it feels like one can run the risk of being too early. I don’t know whats the next Apple or Google but I do know that  Frontier Market are the next Emerging Markets.

Meanwhile, I have never been as optimistic about investing as I have been now. Or is it not me but the compounding machine speaking?

Disclosure: Views are personal notions and do not represent any organisation or company. Investment in stock market can (and many a times do) result in loss of principal capital.

http://www.elevendimension-funds.com

Written by amitdipsite

August 30, 2016 at 11:23 am

Posted in Uncategorized

2 Responses

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  1. Very detailed article. Kudos to you. Keep it up.

    Eternal Seeker

    August 30, 2016 at 6:45 pm


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