People who invest in frontier economies often say they are drawn to these regions by their low correlation to such emerging markets as Brazil, Russia, India and China, or to more developed markets. But with frontier markets down 47.5 percent in the first ten months of this year, according to the Russell Investments frontier markets index, one wonders if the argument holds.
There have been few safe harbors. In October alone the MSCI emerging markets index (which includes the BRIC nations), the S&P 500 index and the Dow Jones industrial average fell, respectively, by 27.1, 16.9 and 14.1 percent. Crude oil futures sank by 32.6 percent, and commodity-reliant frontier markets like Kazakhstan (see “At the Edge of the Earth,” September 2008) have been hammered.
Cliff Quisenberry, founder of Investment Frontiers Research, a University Place, Washington–based advisory firm, insists that these economies — places like parts of Africa and of the former Soviet Union — remain essentially decoupled from developed countries.
Just back from a three-week trip to Africa, Quisenberry proclaims that now is “a great time to be getting into these markets.” He notes that the trailing price-earnings ratio of Kenya’s market is down from more than 20 to about 13. For example, “Cell-phone service provider Safaricom, the most liquid issue on the Kenyan market, is now trading at less than a 10 P/E,” he says. Quisenberry is launching a new frontier hedge fund for even-more-exotic places, though he declines to say where.
Hans Humes, CEO and president of $600 million New York–based hedge fund Greylock Capital Management, says African banks are in good shape — partly because they didn’t chase much leverage to begin with.
“What we’re seeing on the ground in Africa is nothing like the fear and loathing in places like China.”
