I always like hearing from you, and I thank you all for sending in questions and comments. This week, I turn my attention to questions related to emerging and frontier markets, which are a subset of emerging markets.
What is your view on Bangladesh?
– Fuad, Bangladesh
We are quite interested in Bangladesh as an important frontier market. Our team made several company visits there recently and we continue our research there. We are seeing potential and growth in the country, particularly in the banking, agriculture and export sectors. During our visit, we met with brokers, professors and investors to gain a deeper understanding of the economy and market, and we also visited companies across a number of sectors including banks, telecommunications, energy, and pharmaceuticals. For example, one of the companies we visited was a mortgage provider. The company had a diverse loan portfolio, providing loans for housing and construction as well as for home improvements. In our assessment, the company presented an interesting investment opportunity since it appeared to have high growth potential and strong asset quality.
On investing in emerging markets such as Africa, what are your views on the challenges from a structural perspective, e.g. political constraints, poverty and diseases?
– Masego, South Africa
Many African countries have faced great political challenges involving porous borders, corruption and violence-prone governments attempting to rule by force. This has led to poverty and the deterioration of health among segments of the population in certain areas. However, in some countries, reform has been moving ahead and market economies have been growing and prospering. I have discussed my views on the challenges and opportunities in Africa in a previous blog.
One way we identify opportunities amid these challenges is by evaluating if and how these factors affect each individual company. Not all companies are affected in the same way and in fact, some companies may even benefit. For example, health care companies could benefit from the need for medication and vaccinations, while companies related to construction, raw materials and transportation could benefit from growing spending on infrastructure development. It is also important to note that while Africa is not without its problems, it is also a continent rich in natural resources. I am optimistic about the long term growth potential in many parts of Africa.
I have visited Croatia many times over the last 10 years and witnessed a huge transformation – from great infrastructure development to increased consumer spending. Are you seeing investment opportunities here?
– Ken, Austria
Yes, to date we have been seeing investment opportunities in Croatia, where consumer-related sectors have looked especially attractive to us. We continue to consider further investment opportunities in this frontier market that seems to offer potential.
What are your thoughts on India? Specifically, can you share more about the opportunities (sectors) and risks towards investing in India?
– Hiren, India
India’s economy is expected to continue to record sustained economic growth, with its growth forecast projected at 8.2% for 2011 and 7.8% for 2012. Over the long term, a high growth rate could offer a good platform for Indian companies to grow, as well. India is the second most populous country in the world, with over 1.21 billion people, and thus represents a huge consumer market. Moreover, with half of India’s people under the age of 25, India is likely to continue to have both a strong labor force and large consumer base—important factors that could support the market in the future. In addition to rising consumer spending, India benefits from the availability of skilled manpower and excellent managerial talent, which we believe provides it with an edge in the service sectors. Infrastructure development is another area that could contribute to economic growth—at this stage, India generally has a lack of infrastructure development. We are also concerned about the country’s high fiscal deficit and rising inflationary pressures, but still maintain our belief that India presents potential.
Looking at the increasing inflation of China, what are your views?
– Shawn, Canada
We have begun to see signs that the overheated Chinese economy may moderate in the not-too-distant future. We believe that inflation in China could reach a peak in the near future as a result of the Chinese government’s decision in July to increase pork supply by releasing a portion of their strategic pork reserves. By releasing more pork supply into the market, the government hopes to combat rising pork prices. That move, combined with an easing growth rate, could subsequently lead to the end of the central bank’s current tightening monetary policy cycle in the near term. Moreover, other emerging markets such as South Korea and Turkey have either stopped raising interest rates or even cut rates as a result of the global turmoil despite inflationary pressures. We may see this trend in China going forward.
 Source: International Monetary Fund, WEO Update, June 2011.
 Source:United States Census Bureau – International Data Base (IDB), Demographics Indicators, 2011
 Source: World Population Prospects, the 2008 Revision. United Nations, Department of Economic and Social Affairs (DESA), Population Division,New York, 2009