e-fundresearch.com: With regards to the new year 2015: How optimistic is your view into the future and what developments and events should frontier markets investors closely monitor in 2015?
Dominic Bokor-Ingram:The main reason for investing in Frontier markets is the excess economic growth. Over the next 5 years frontier market economies are forecast to grow at 5-6% a year versus 3-4% for Emerging markets and 1-2% for developed markets. Our investment process focusses on how to convert this excess economic growth into shareholder return. Frontier markets today are cheaper than they have been for some time with an average p/e of less than 10 times for 2015 and strong corporate earnings growth forecast over the next 3 years. There is no single event on the horizon that will greatly influence Frontier markets this year as these markets are driven much more by domestic policies and reforms than by global factors. The most exciting opportunities today arise in countries that have experienced a period of poor performance and slow or no growth where the political bias has changed and a strong reform agenda has now been put in place and is being adhered to. Countries like Vietnam, Pakistan and Georgia fall into this category.
Potentially some of the most exciting opportunities for 2015 are to be found in countries where the potential for significant positive change exists but the outcome is as yet unknown. There is significant upside potential from the change of political regime in Argentina which will result from elections in October this year. It is currently too early to tell whether there will be a pro-reform party in power but with a market capitalization to GDP of only 1.3% versus 40% in Brazil, the potential is obvious. Iran could be the most exciting frontier market this year if a deal over nuclear weapons can be achieved in June and economic sanctions start to be lifted. Iran has the largest reserves of oil and gas in the world, a very developed economy and infrastructure and a highly sophisticated and fully functioning stock market. Trading on a p/e of just 6 times 2015 earnings with a double digit dividend yield, Iran has the potential for the biggest re-rating of any of the markets in our Frontiers universe.
