The 5 Best and Worst Frontier Markets

In H1 of 2014

June 30, 2014

Investment Frontier

We’re already at the halfway point of 2014, and it’s time to take a look back and see the best and worst performers in frontier markets so far this year. We track 53 different stock markets in frontier countries on our Market Dashboard, and so far they are up 7.2% in local currency terms and 3.2% in USD terms this year:

Regional Summary:

Since Q1 2014 of this year (which we covered in a previous post), Africa and the Americas have bounced back from the red, with the Americas gaining over 7% in the past quarter helped in no small part by the amazing run-up in Argentina’s Merval Index. Please see the special note below regarding Argentina’s situation.
South Asia, which was already the strongest region in Q1, continued to dominate powered by the top two best performing frontier markets globally this year.
Central Asia, our smallest region with just Mongolia and Kazakhstan, continues to suffer from poor performance due to lackluster currencies.
On our best and worst 5 market list, we have only one market making a repeat appearance (Pakistan); how’s that for a low volatility trading environment?

Without further ado, here are the five best and worst performing frontier markets in the first half of 2014:

Best Performing Frontier Markets in H1, 2014:

1. Nepal

Nepal’s NEPSE index has ridden an epic bull market run that sees it up almost 25% this year in USD terms thanks to a currency that has been just as strong. Nepal is one of our more obscure markets, one that Bloomberg does not even have data for, but it is currently trading at a 68 month high and has just eclipsed the previous highs seen in October of 2008. In the past year, it is up almost 90% and is now targeting the all-time high of 1,177.

2. Pakistan

Not to be outdone is Pakistan, where the Karachi Stock Exchange 100 index is still up almost 24% and is the only market to remain as a best five performing frontier market in both Q1 and H1 of this year. The KSE 100 was up another 8% last quarter and the Pakistani Rupee (PKR) remains the best performing currency on our dashboard at +6.2% this year.

3. Slovenia

The Slovenian Blue Chip Index has been a standout in Europe by gaining almost 23% this year. Leading the way has been Luka Koper, a cargo port/terminals stock that is up almost 150% this year.

4. Philippines

In fourth place we have the Philippines, where the Philippine Stock Exchange Index has returned almost 18% in USD terms this year. With GDP growth over 6% and a stable currency, the Philippines has been a favourite of investors in Asia, and its stock market has been no exception.

5. Malawi

With a GDP per capita of under $300 USD, Malawi is one of the most underdeveloped countries we monitor, even among the other frontier markets we watch. While the All Shares Index is up only about 7% this year, it is up 93% over the past year and it is the currency, the Malawi Kwacha, which has powered the gains since it is up 8% this year on tobacco revenues.

Worst Performing Frontier Markets in H1, 2014:

1. Ghana

Ghana is a prime example of how important currency performance is to frontier market equities. Outside of Argentina and Ukraine, Ghana’s cedi has been the worst performing currency in the world at almost -43%, which we’ve touched on before. This has resulted in the GSE Composite Index down over 22% in USD terms despite a 9.7% gain in local terms.

2. Iraq

Iraq’s current political turmoil has pushed oil prices higher but has also caused the local ISX General Index to collapse last quarter. Since the beginning of June, the index has fallen 13% and had been fairly stable before then.

3. Jamaica

Jamaica’s JSE Market Index is down almost 13% on the year with the currency another 5.4% lower as well. While the biggest stocks on the exchange, Scotia and National Commercial, have been stable all year, other large cap stocks are trading at year lows such as GraceKennedy and Jamaica Money.

4. Mongolia

Mongolia has still not recovered from its breathtaking run in 2010-2011, and the MSE Top 20 Index is down another 5.5% this year. Unfortunately, the local currency, the Mongolian tugrik, is down another 9.5% this year and has lost over 30% vs the USD since the beginning of 2013.

5. Cambodia

Cambodia had its second IPO since the launch of their stock exchange this month, with the release of Grand Twins International. With multiple delays investor reception seemed muted, probably due to the performance of the other stock on the exchange, Phnom Penh Water Supply Authority, which is down about 11.6% this year.

Special note: Argentina

Argentina has been on the verge of potential default of debt payments to hedge funds. While the local stock market is technically up almost 47% this year in local currency terms, the Argentine Peso (ARS) has depreciated about 25% according to the official rate. However, this rate is set by the government and the black market rate for USD/ARS has been trading past 12.35, which means the Peso has lost almost 90% of its value this year. Since data on the black market is hard to track, we’ve used the official rate (which has been devalued previously) on our dashboard.

Tags: cambodia, emerging markets, frontier markets, ghana, iraq, jamaica, mongolia, philippines, sloveni
Posted in Global, Consulting