Archive for the 'Emerging Markets' Category

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Food Prices at Dangerous Level

Published on February 16, 2011 in Emerging Markets. 0 Comments Tags: .

The World Bank says food prices are at “dangerous levels” and have pushed 44 million more people into poverty since last June. According to the latest edition of its Food Price Watch, prices rose by 15% in the four months between October 2010 and January this year. Food price inflation is felt disproportionately by the poor, who spend over half their income on food [Source].

The World Bank’s president, Robert Zoellick, said in a statement: “Global food prices are rising to dangerous levels and threaten tens of millions of poor people around the world.” He also said that rising food prices were an aggravating factor of the unrest in the Middle East, although not its primary cause [Source].

The Global Response to Federal Reserve QE2

Published on January 11, 2011 in Emerging Markets and International Business. 1 Comment Tags: .

In early November, the Federal Reserve put all speculation to rest when it formally announced that it would move forward with another found of quantitative easing, as it would inject an additional $600 billion of emergency liquidity into the United States economy. The global response to the Fed’s decision to move forward with QE2 was heated, to say the least. However, let’s first put the Fed’s decision in context. In June, when key data out of the U.S. began missing expectations on a consistent basis, traders began selling the dollar quite aggressively into higher-yielding assets such as emerging market currencies like China, India, Russia, Brazil, and the Eurozone.

When capital flows into an emerging market, it is good until a certain point. However, after a certain point, then increased capital flows actually become destructive. They drive up a country’s currency exchange rate, which causes their exports to become less attractive in foreign markets, which threatens to destabilize economic growth, since most emerging markets are heavily reliant on their exports.

Therefore, the global response to QE2 was frustration. China accused the U.S. of artificially devaluing its currency, Brazil increased a tax on foreign bond holders, and several emerging market Central Banks began intervening in the fx market in an attempt to drive down their exchange rates.

Currently, the United States is not necessarily on the good side of these emerging markets. Even Germany has lashed out at the U.S. regarding its tendency to print money at such substantial levels. Suffice to say, there is much volatility and uncertainty in global forex market, and this volatility will most likely remain in place until the global economy returns to stable growth, and that could be some time yet.

Business Model Innovation

Published on January 3, 2011 in Emerging Markets and Global Strategy. 0 Comments Tags: , , , , .

Sooner or later, all businesses, even the most successful, run out of room to grow. Faced with this unpleasant reality, they are compelled to reinvent themselves periodically. The ability to pull off this difficult feat—to jump from the maturity stage of one business to the growth stage of the next—is what separates high performers from those whose time at the top is all too brief [Source].

Companies that successfully reinvent themselves have one trait in common. They tend to broaden their focus beyond the financial S curve and manage to three much shorter but vitally important hidden S curves—tracking the basis of competition in their industry, renewing their capabilities, and nurturing a ready supply of talent. In essence, they turn conventional wisdom on its head and learn to focus on fixing what doesn’t yet appear to be broken [Source].

A preview of such business models can be found in emerging markets. Opportunities of the future can be spot on a street corner in Bangalore, in a small city in central India, in a village in Kenya—and they don’t require companies to forgo profits. On the surface, nothing could be more prosaic: a laundry, a compact fridge, a money-transfer service. But look closely at the businesses behind these offerings and you will find the frontiers of business model innovation. These novel ventures reveal a way to help companies escape stagnant demand at home, create new and profitable revenue streams, and find competitive advantage [Source].

Right now more than 20.000 multinationals are operating in emerging economies. According to the Economist, Western multinationals expect to find 70% of their future growth there—40% of it in China and India alone. But if the opportunity is huge, so are the obstacles to seizing it. The Economist wrote, “The only way that companies can prosper in these markets is to cut costs relentlessly and accept profit margins close to zero.”

When Innovation, Too, Is Made in China

Published on January 1, 2011 in Emerging Markets. 0 Comments Tags: , .

As a national strategy, China is trying to build an economy that relies on innovation rather than imitation. So can China become a prodigious inventor? The answer, in truth, will play out over decades — and go a long way toward determining not only China’s future, but also the shape of the global economy [Source].

Clues to the Chinese approach emerge from a recent government document containing goals for drastically increasing the nation’s production of patents. It offers a telling glimpse of how China intends to engineer a more innovative society.

The document, published in November by the State Intellectual Property Office of China, is called the “National Patent Development Strategy (2011-2020).” It discusses broad economic objectives as well as specific targets to be attained by 2015 [translation of the document].

The Emerging Emerging Markets

Published on December 23, 2010 in Emerging Markets. 0 Comments Tags: , , , .

The “new” emerging markets come in two varieties: “overlooked” countries that can rival the BRICs in terms of prosperity; and “frontier” countries that are only just beginning to emerge from their chrysalises.

The biggest concentration of overlooked markets is in Africa (which is in many ways an overlooked continent). Africa’s star performers are South Africa, Egypt, Algeria, Botswana, Libya, Mauritius, Morocco and Tunisia. Collectively these countries match the average GDP per head of the BRICs. Basically there are greatly overlooked emerging giants in every corner of the world. For example in the Middle East, Turkey and Saudi Arabia will attract a lot of attention. But the biggest praise will be for Indonesia: it will be the emerging-market star of 2011, with analysts lauding its innovative companies, growing middle class and relative political stability [Source].

The frontier markets are poorer and riskier than the overlooked ones. They include Sri Lanka, Bangladesh and Pakistan in Asia, as well as Kenya, Nigeria and Rwanda in sub-Saharan Africa. You will hear a great deal about the unexpected merits of frontier economies in 2011. Nigeria, home to the tenth-largest oil reserves in the world, has stabilised its politics. The World Bank listed Rwanda as its champion pro-business reformer in 2010. Analysts will develop a special enthusiasm for Vietnam, which is well-placed to steal outsourcing jobs from China [Investors Explore the Frontier Markets].

Private Equity is shifting focus to Asia

Published on December 13, 2010 in Emerging Markets. 0 Comments Tags: , .

Blackstone Group named Michael Chae, one of its most senior deal makers in the United States, to head the firm’s private equity business in Asia. He will be based in Hong Kong. The move underscores the private equity industry’s shifting focus to regions outside the United States, particularly Asia.

Blackstone’s president, Hamilton James, has said that he expects roughly half the firm’s deals to be in Asia next year. And Stephen Schwarzman, the firm’s co-founder and chief executive, is relocating to Europe for three to four months next year, in part to oversee the firm’s international portfolio and be close to Asia, where he spends much of his time.

“Michael is one of our leaders and most senior partners in our private equity business, and his move to lead our business in Asia reflects our growing commitment to the region,” Mr. Schwarzman said in a statement. “As our business continues to globalize, Asia is becoming ever more central to the firm.”

Newfound Strength in Frontier Markets

Published on November 15, 2010 in Emerging Markets. 0 Comments Tags: , , .

Frontier investing is a new-enough phenomenon that professionals disagree on which countries make up the sector. Different managers and index providers include different names. The Guggenheim Exchange Traded Funds (ETF), for example, has Chile and Poland among its top five holdings, though neither is part of the MSCI Frontier Index. The index includes such diverse countries as Argentina, Romania, Kenya and Kazakhstan. See also this post.

Even if you believe that frontier countries will grow far faster than the developed world, you have to deal with the practicalities, including cost, of investing in them, he said. Frontier funds tend to be more expensive than average and have short records.

Almost everyone, including MSCI, puts Nigeria in the frontier category. “I get people asking, ‘Who’s the next Brazil?’ “said Adam J. Kutas, manager of the Fidelity Emerging Europe, Middle East and Africa fund. “I answer without hesitation that it’s Nigeria,”.

Intel Invests in Middle East

Published on November 4, 2010 in Emerging Markets and International Business. 0 Comments Tags: , , .

At last week’s World Economic Forum (WEF) meeting in Marrakech, one interesting announcement largely flew over Western heads: Intel Capital has made large-scale investments in three Jordanian and Lebanese companies.

The three startups that have received fresh capital from the investment organization are UK/Lebanon based Nymgo (which delivers cheap VoIP telephony services), Jordan-based Jeeran (social networking site) and ShooFeeTV (which operates a Web-based entertainment guide) [Source].

Intel Capital’s interest in the Middle East region coincides with WEF meetings in the area–a 2009 conference in Jordan was marked by a similar round of investment. The mere fact that Intel is exclusively going after internet portals and communication facilitators will have an effect on the shape of the local start-up scene: Newly minted investors and techies will naturally want to go where the money is [Source].

The Emerging Online Giants

Published on July 10, 2010 in Emerging Markets. 0 Comments Tags: , , , , .

At first glance the three firms could not look more different.

DST was created in 2005 when two Russian internet investors, Yuri Milner and Gregory Finger, pooled their interests in mail.ru, a Russian web portal. Today the firm controls many of the country’s leading websites and boasts an interesting mix of owners, including Goldman Sachs and Alisher Usmanov, a Russian billionaire, who holds 27%.

Based in Cape Town, Naspers is nearly 100 years old and is the publisher of the Daily Sun, South Africa’s biggest newspaper. But it is one of the most ambitious old-media companies anywhere in its move online. It still makes most of its sales—28 billion rand ($3.6 billion) in the year to March—from print and pay-television, but it uses the cash to buy online firms.

Tencent hails from Shenzhen, near Hong Kong. Founded in 1998, it had revenues of $1.8 billion in 2009 [Full article here].

Investors Explore the Frontier Markets

Published on April 15, 2010 in Emerging Markets. 0 Comments Tags: , , , .

This year the real action for risk-tolerant global investors is on the frontier.

The MSCI Barra Frontier Markets index tracks equities of 25 countries, including six in the Middle East that account for 55% of the index’s total market capitalization. Year-to-date as of Apr. 12, the Frontier Markets index was up 13.66% compared with a 4.09% gain by the BRIC countries (Brazil, India, China, and Russia) in aggregate and a 5.25% increase for the emerging markets overall.

The distinction between emerging and frontier markets mostly concerns size and how far along they are in developing legal and regulatory systems, critical elements for international investors [Source].

More on Frontier Markets van be found here:
Frontier Markets: To boldly go where few investors have gone before!

MSCI Frontier Markets Indices.