This week on the frontiers: Nigeria grabs fund managers’ attention

Within the past week, Nigeria postponed its presidential election, begged for more international help in fighting Boko Haram, saw its currency plumb a new record low, and joined a list of countries that ratings agency Standard & Poor’s is poised to downgrade.

The impact on investors? They’re starting to like what they see.

Michael Levy, manager of Barings’ $50m frontier markets fund, says the country’s market is starting to be “extremely cheaply valued”. In an interview that it will publish on WSJ Frontiers next week, Levy revealed that Barings’ view has shifted sharply since late last year when the fund cut its exposure to the country. “Nigeria is now looking pretty interesting,” he says.

Jan Dehn, head of research at Ashmore, an emerging-markets-focused investment firm, commented that “the temporary risk aversion affecting Nigerian asset prices will come to be seen, in retrospect, as a good opportunity to add.”

Gustavo Galindo, manager of the $300 million Russell frontier markets fund, is also on the lookout for Nigerian bargains. “There are some good companies there that will be unfairly punished so there is tremendous amount of upside once the situation clears,” he comments in a conversation with WSJ Frontiers.

Galindo may see potential future opportunities in Nigeria, but for current ones he’s focusing on Vietnam and Bangladesh, which he believes are set to continue benefitting from the rise in Chinese manufacturing costs.

He also sees scope for strong investment growth in Kenya.

Already famous for being the home of pioneering mobile-phone-based financial service M-Pesa, Kenya looks set to take a lead in using Bitcoin for international money transfers. The Journal’s resident Bitcoin experts, Paul Vigna and Michael Casey, revealed that Nairobi-based BitPesa has raised a second round of funding that will help it expand its services and geographical footprint.

BitPesa is hardly alone in capturing investors’ attention: In 2014, sub-Saharan Africa attracted a record flow of private equity money, the WSJ’s Hillary Canada reports. Data from the Emerging Markets Private Equity Association show 24 funds closed on $4.03 billion, more than triple the $1.25B raised by 15 funds in 2013. Investment in the region grew to $1.95 billion from $1.72 billion as domestic and foreign buyout firms sought out consumer goods and services, financial services and telecommunications assets.

This year may prove to be tougher, particularly for Angola and Gabon, whose sovereign ratings Standard & Poor’s cut, citing the African countries’ exposure to falling oil prices. The agency cut a number of other frontier-market oil producers, including Bahrain, Oman, Venezuela and Kazakhstan.

S&P cut Saudi Arabia’s outlook to negative in the review, but any disappointment the Kingdom might have felt was probably offset by the release this week of information provider Bloomberg’s fourth annual ranking of the most promising frontier markets. Saudi Arabia topped the list, followed by Estonia and Slovakia.

Perhaps surprisingly, European markets dominated the top 10 in the index, which ranked countries according to a range of factors including projected economic growth, price-to-book ratio of primary equity index and ease of doing business. Venezuela took last place—by a convincing margin.

Source: blogs.wsj.com