LONDON (Reuters) - Templeton Asset Management fund manager Mark Mobius expects ‘frontier’ markets to outperform wider emerging markets in the next decade, with resource-rich Nigeria and Kazakhstan his top picks.
The veteran emerging markets specialist told Reuters that while he only currently has $800 million of his $45 billion total global investments in frontier markets, he expects that proportion to grow sharply in the coming decade.
“Frontier markets are still a relatively small part of the wider portfolio but I’d expect them to do better,” he said, pointing to their relative immaturity and rising commodity prices, partly fuelled by rivalry between more established developed and emerging powers. “I’d expect to see them grow faster than the rest of the fund.”
He said his Frontier Markets fund was spread across a very large number of some of the world’s smaller financial markets, with the largest components in Nigeria, mostly with banks, and in Kazakhstan with resource firms.
The exact proportion of the fund those two countries made up varied daily, he said, but tended to be around 5-7 percent.
“We like Nigeria. It’s got natural resources, not just oil but other resources as well, and there are a lot of firms moving into the wider region,” he said, saying pricing was also appealing. “You’ve got a lot of volatility. You’ve got a lot of political risk but in general I think you could say the country is clearly moving in the right direction.”
He said he believed corruption was generally falling and the country would likely weather political difficulties including religious tensions, violence in the Niger Delta and presidential elections next year.
His Nigerian holdings were principally three banks, he said — Ecbank (ETI.LG), UBA (UBA.LG) and Access Bank (ACCESS.LG). His holdings in Kazakhstan were principally the main state gas and oil firm KazMunaiGas RDGZ.KZ and copper firm Kazakhmys KZMS.KZ (KAZ.L).
Mobius said he was steering clear of the Central Asian country’s still troubled banking sector, one of the worst hit by the financial crisis.
Other stocks in the Frontier Markets fund included a number of South African companies aimed at giving the fund greater exposure to growth in sub-Saharan Africa, while Africa in total made up some 10-15 percent of the fund in total, he said.
Southeast Asia was also a significant region in the fund, he said, primarily dominated by Vietnam.
Latin America — with the exception of a handful of companies in Panama — was relatively under-represented in the frontier fund because of a lack of appealing stocks. But Brazil made up the largest country component in his overall investments.
Mobius said he was watching the outcome of Brazil’s presidential election, marginally concerned by what he described as a “more statist” approach by ruling candidate Dilma Rousseff. He would rather see a victory for opposition candidate Jose Serra in the October 31 run-off — but said he believed neither would undo a generally appealing Brazilian investment story.
“I’m not particularly worried about the politics,” he said. (Editing by Greg Mahlich)