Dan Keeler

Investors in frontier markets are seeing a gradual reduction in structural risks, according to Hasnain Malik, head of equity research at frontier- and emerging-markets investment bank, Exotix Capital. Although the markets are complex and diverse, he said, “what they have in common is that, in general, political institutions are strengthening, orthodox economic policies are increasingly being adopted and external geopolitical strategic support is becoming more constructive.”

Malik also believes frontiers could benefit from increasing investment as the heavy recent inflows to larger emerging markets spill over into frontiers. Markets that Exotix believes have the best prospects include Bangladesh, Egypt, Morocco, Nigeria and Zimbabwe. Malik is also positive on Pakistan, arguing that stock valuations already reflect an expectation of a further currency devaluation, and that politics won’t disrupt the gains from better security and from China’s massive infrastructure investment in Pakistan.


Although Pakistan’s stock market has been struggling, tumbling more than 25% in the wake of its upgrade by MSCI to emerging-markets status, pockets of opportunity are appearing, Nikhil Bhatnagar, director of Asia sales at frontier-focused brokerage Auerbach Grayson, told WSJ Frontiers. Bhatnagar is particularly keen on the auto and pharmaceuticals sectors, but believes the banks could benefit if inflation picks up on the back of higher oil prices. “We’ve been buyers in the last two or three weeks,” he added.

Pakistan. Qasim Nauman

Bhatnagar is less optimistic that frontier markets in the region will benefit from a spillover of investment from larger emerging markets, though. “In Asia, frontier is going to underperform emerging because such a large proportion of the index in these markets is being driven by passive flows,” which tend to be directed to the larger markets, he noted.

While structural risks in many frontier-market countries are decreasing, the global environment is profoundly uncertain, according to consultant Control Risks, which unveiled its annual RiskMap this week. “Despite the most positive global economic outlook since the end of the financial crisis, we are entering a year of geo-political fragility that has the potential to trigger shockwaves to global stability and business confidence,” Richard Fenning, the firm’s CEO, said.

Geopolitical shocks don’t seem to have the power they once had, though, according to Control Risks senior partner, Charles Hecker. “We’ve arrived at a place where fairly serious geopolitical events are happening but they seem to be manageable. Black swans have lost some of their potency,” he added.

African countries featured prominently among those whose risk environment has improved most, according to Control Risks, with Egypt, Angola and Mozambique all seeing political risk levels diminish. Jean Devlin, who covers Africa for the firm, said Angola stands out for the smoothness of the transition to the new president, João Lourenço, and the swiftness with which he “asserted his authority in the battle for influence with his predecessor,” José Eduardo dos Santos, who had held onto power for 38 years. “We haven’t seen any fallout, and we’ve seen quite a quick move to undo some of the structures that had been set up in the last years of dos Santos,” Devlin added.

In her commentary on Africa’s prospects, Devlin provided a timely reminder of a comment by another longtime African president, Ugandan President Yoweri Museveni. In his inauguration speech in 1986, Museveni reportedly said: “The problems of Africa, and Uganda in particular, are caused by leaders who overstay in power, which breeds impunity, corruption and promotes patronage.” This week, Ugandan lawmakers passed a constitutional amendment that would allow Museveni to stay in power until 2035. A constitutional clause capping a presidential candidate’s age at 75 would have required the 73-year-old leader to step down at the 2021 election.

Uganda's long-time President Yoweri Museveni. Ben Curtis/Associated Press

Wednesday’s vote to remove the age limit and extend presidential terms to seven years from five instead clears the way for Museveni to potentially stay in office until he is 91, Nicholas Bariyo reports. The vote followed days of heated parliamentary proceedings marred by brawls, media bans and raucous street protests in the capital Kampala. “This is nothing more than a coronation,” said Robert Kyagulanyi, an opposition lawmaker whose no vote failed in the face of the 67% parliamentary majority of Museveni’s National Resistance Movement.

The president told lawmakers last week that removing the age limit would give him an opportunity to promote development “without being distracted by politics.”

US private equity firm KKR is selling a controlling stake in its first African investment, one month after the firm disbanded its Africa deal team because it couldn't find enough big companies to buy, Imani Moise reports. Sun European Partners will buy a controlling stake in KKR's Afriflora business for an undisclosed amount. Ethiopia-based Afriflora, the world's largest grower of roses, became the private equity firm's first foray into the continent when it invested about $200 million to buy a stake in the company in 2014.

Sri Lanka’s economy is on course to expand 4.5% next year, supported by strong global growth and a rebound in the agricultural sector, Capital Economics forecast this week. The firm expects both monetary and fiscal policy to remain tight, though, creating a drag on growth, which is still well below the average of 6% over the past five years. Sluggish growth in the industrial sector has also been weighing on the economy this year, dragging third-quarter year-on-year growth down to 3.3%, according to CapEc’s Asia economist Alex Holmes. “The overall picture is one of a weak economy that has little chance of seeing a meaningful recovery anytime soon,” Holmes said.

Analysts at research firm BMI presented an opposing view, suggesting the agricultural sector would continue to be hampered by the long-term impact of recent severe weather but that economic growth would be boosted by government spending and growth in exports and in the tourism sector. “Increased public spending under the 2018 budget that is targeted at spurring growth will benefit the industrial sector, which accounts for 27.8% of the national output,” the firm noted this week. BMI also expects garment makers to benefit from the removal of EU import tariffs in the wake of a deal over human rights, governance and environmental standards.

Vietnam’s government is selling more than half of its stake in the country’s largest beer maker to Thai billionaire Charoen Sirivadhanabhakdi for $4.8 billion, paving the way for more multibillion-dollar deals in its state-run companies, P.R. Venkat reports. Vietnam Beverage, a unit of Singapore-listed Thai Beverage, won its bid to acquire 53.59% of state-run Saigon Beer Alcohol Beverage Corp., known as Sabeco, according to Vietnam’s Ministry of Industry and Trade.

Cans of beer at a Sabeco factory in Hanoi. Reuters

The deal is likely to boost foreign-investor confidence in Vietnam’s fast-growing market and could pave way for more such divestments. The government has said it is also looking to sell a significant stake in another beer maker, Hanoi Beer Alcohol & Beverage Joint Stock Corp. or Habeco, the country’s third-largest brewer.

Protesters blocked streets and highways across Honduras on Monday after the Organization of American States said its observers could not validate election results showing President Juan Orlando Hernandez to be the winner in last month’s vote, Jose de Cordoba reports. The OAS secretary-general, Luis Almagro, cited “irregularities and deficiencies” in the voting process after the Honduran electoral tribunal on Sunday declared the conservative incumbent to be the winner.

Honduran President Juan Orlando Hernandez. Rodrigo Abd/Associated Press

Salvador Nasralla, the candidate of the leftist coalition Libre, claims he won the election and flew to Washington to meet with Almagro and US officials. Meanwhile, his supporters clashed with soldiers and police and burned tires in the streets. Almagro said the vote count showed “deliberate human intrusions in the computer system” during the tallying, and “intentional elimination of digital traces.” The OAS said “improbable” levels of voting in some areas made it impossible to determine the winner. “The only possible way for the victor to be the people of Honduras is a new call for general elections,” Almagro said.

On Friday, the US backed the official election result. Shortly afterwards, Nasralla conceded defeat, saying, “Now, with the decision of the United States, I am out of the game.”

Venezuelas government is once again turning to Russia’s Rosneft for much-needed foreign currency, Anatoly Kurmanaev writes. As the Russian state oil producer has said it won't give new loans, Venezuela has resorted to giving away more of its mineral wealth. Last week, Rosneft said it was awarded exclusive rights to develop and export gas from two offshore gas fields in eastern Venezuela. The fields are just a few kilometers away from gas-hungry Trinidad, which has been trying to buy Venezuelan gas for years, to offset its declining production. By giving the fields to Rosneft, Venezuela now has an excuse to not have to sell the field's gas locally for a pittance.

Ratings firm Moody’s withdrew its rating on a $5 billion Venezuelan government bond this week. The firm offered no details about why it had scrapped its rating of the 2036-dated bond beyond noting simply it was for “business reasons.”

Quote of the Week

“We’ve arrived at a place where fairly serious geopolitical events are happening but they seem to be manageable. Black swans have lost some of their potency”

Charles Hecker, senior partner, Control Risks

Key Stories from WSJ

Number of the Week

$4.8 billion

The amount Thai billionaire Charon Sirivadhanabhakdi will pay for a majority stake in Vietnam’s largest beer maker, Sabeco

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