3 global themes
Frontera recently interviewed Asha Mehta, Senior Vice President and Portfolio Manager at Acadian Asset Management. The firm currently has over $82 billion worth of assets under management. Acadian’s frontier markets equity fund is heavy on the materials and the financial sector in absolute terms. Within the frontier markets (FRN) (FM), the asset manager’s portfolio is heavily tilted towards Asian equity with 48.3% of the Acadian Asset Management portfolio invested in Asia as of January 31, 2017. Acadian’s top Asian markets for 2017 include Pakistan (PAK), Bangladesh & Vietnam (VNM). The positive outlook on the Asian frontier markets is attributable to three global themes, from what Asha told Frontera.
Growth potential
Asian frontier markets:
- are very liquid relative to the other frontier markets.
- are very supportive of growth, particularly at the private sector level
- sport strong fundamentals
Capital deepening
“A second theme driving the frontier markets is drivers of capital deepening. Capital deepening is a situation where increased capital is invested in the economy. With valuations attracting more and more capital into these frontier markets (FRN) (FM), it will be interesting to see how investors gain exposure to the frontier markets as we see more institutional ownership into these markets leading to price appreciation. Argentina (ARGT) is a pretty interesting market these days from a capital deepening perspective,” Asha told Frontera.
Capital deepening can occur as emerging investors are exposed to frontier countries, as frontier countries are upgraded to emerging status.
According to Ms. Mehta, MSCI’s potential decision of upgrading some of these markets to the emerging markets (EEM) (VWO) status, or perhaps inclusion into the index. Pakistan is currently going through its upgrade event, announced for an upgrade last year, to be implemented this year. “The markets have seen some pre-positioning in Pakistan last year. We might see some more going into this year,” Asha told Frontera. Saudi Arabia (KSA) (GULF) may also be considered for inclusion into the MSCI Emerging Markets index in the next few years.
