Far-flung geographically and shaped by vastly different cultural, religious and political structures, the CIVETS show the potential to develop rapidly and reward those willing to take on emerging market risk beyond the more-established BRIC countries, experts say. GDP by and that they will account for half the global economy by In a recent survey conducted by Knowledge Wharton and the global communications firm Fleishman-Hillard, a majority of corporate executives, investors and business leaders indicated that they would be interested in doing business with multinationals in the CIVETS countries.
By one measure of economic success, Asia's largest frontier markets rank below most of their global peers. Pakistan, beset by social welfare challenges such as illiteracy, has a per-capita GDP of dollars.
Vietnam, which didn't begin to transition to a market economy until the late s, does better at dollars. By comparison, Africa's largest frontier markets, Nigeria and Morocco, each have per-capita GDPs of dollars, while those in Europe and the Middle East range between Bulgaria and 43, dollars Kuwait.
But when the low per-capita GDP of a frontier market is coupled with the transformation of productivity and institutions, it can lay the groundwork for significant economic growth.
And a handful of Asian frontier markets, including Mongolia, Sri Lanka and Vietnam, offer a mix of compelling growth prospects for savvy investors, while improvements in Pakistan have even led one index provider to recently upgrade the country from frontier market to emerging market status.
How, then, does one Frontier markets strengths and weaknesses of investing savvy investing out on the Asian frontier? Credit Suisse believes that investors need to pay attention to the following factors if they're interested in participating in some of the most dynamic growth stories in Asia.
The country was removed from the MSCI Emerging Markets index in after political turmoil led the country to set a temporary floor for its securities, a move that ultimately paralyzed its stock market.
But a host of market reforms in recent years, including the conversion of its stock exchanges to shareholder-owned corporations, helped prompt the upgrade to its former status. In Mongolia, the expansion of the stock exchange is a key part of the current government's agenda, and recent policy changes have spurred progress on major infrastructure projects in the country while also improving overall business conditions, says Helman Sitohang, the CEO of Credit Suisse's Asia Pacific region.
Meanwhile, some miles south in Vietnam, ongoing reforms such as the privatization of state owned enterprises are also supportive of economic growth. For all their collective potential, the differences among Asian frontier markets suggest varying opportunities for investors.
The fund approved a three-year, 1. But it's important to keep an eye out for both the entry — and exit — of financial assistance. For the last three years, Pakistan has relied on loans from the International Monetary Fund Extended Fund Facility to strengthen its finances and help it avoid a balance of payments crisis.
That facility is scheduled to conclude in September, and while Pakistan is seeking to continue fiscal consolidation measures under its fiscal year budget, Credit Suisse Investment Strategy analysts caution that the country could still see "slippage" in revenue and expenditures without the "watchful eye" of the IMF.
Population Growth and Old Age A growing working-age population can boost GDP, while an excessively high old-age dependency ratio — the ratio of people older than 64 to those between the ages of 15 and 64 — puts pressure on a country's workers and its economy. Of 12 major emerging market economies recently studied by Credit Suisse, Pakistan had the third highest growth rate of its working age population at 2.
At the same time, old-age dependency ratios in Pakistan 7. Asian Frontier Markets Source: Credit Suisse, United Nations Youth Unemployment and Education Youth unemployment rates are high in most frontier markets and Asian countries are no exception.
In Sri Lanka, the youth unemployment rate is 20 percent, more than four times that of the general population rate of 4.
* computer generates a simulated efficient frontier from historical returns, s.d., and correlations combined w/ the manager's capital market expectations *rather than a single potfolio, there is a distribution of portfolios at each level of risk. In a special report by The Financialist, hear Credit Suisse's and other experts participating in our Asian Investment Conference discuss the promise and challenges facing four of the most dynamic frontier markets today—Pakistan, Vietnam, Sri Lanka, and Mongolia. INBS Prof. Ikechi Ekeledo Student Name: Si Yong Park 9/22/ Case Study #1(Frontier Markets: An attractive Opportunity for international Investment) 1. What are the main strengths and weaknesses of investing into frontier markets?--Weakness: High Risk, Uncertainty (esp. government policies and national stability), difficultly in valuation of investments (Net Present Value and other .
Vietnam has the lowest youth unemployment rate of the four countries, at 6 percent, but that's still three times the country's 2 percent general jobless rate. On the education front, Pakistan lags behind its smaller peers: Barely a third of the population receives at least some secondary school education, while just over half By contrast, the proportion of the population with some secondary education in Vietnam 65 percentSri Lanka 74 percent and Mongolia 85 percent puts those countries ahead of major Middle Eastern frontier markets such as Kuwait and Lebanon, both of which are below 60 percent.
Health Good health is critical for productivity and growth. Citizens of Asian frontier markets have healthy life expectancies ranging from 58 in Pakistan to 67 in Sri Lanka, ahead of frontier market economies in Africa — Nigerians have a healthy life expectancy of only 47 years — but slightly behind the healthiest frontier market countries in the Middle East and Europe.
Asian frontier markets do better than their African peers when it comes to sanitation but generally lag Middle Eastern and European counterparts.
Some 40 percent of people in Mongolia and Pakistan lack access to proper sanitation facilities, making them more vulnerable to the spread of communicable diseases.In finance, the Sharpe ratio is a way to examine the performance of an investment by adjusting for its risk.
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government policies and national stability), difficultly in valuation of investments (Net Present Value and other .