T Rowe Price’s Oliver Bell has increased his overweight exposure to Vietnam, pushing the country to a 10 per cent position in his fund.
The manager of the group’s newly launched Luxembourg-domiciled Frontier Markets fund said he was now 6 per cent overweight compared to the fund’s MSCI Frontier Markets benchmark, because of confidence in ongoing reforms.
Mr Bell said the country was “reminiscent” of Dubai or the United Arab Emirates, which had performed strongly in the past few years after emerging from the fallout from the global financial crisis.
“What we are seeing in Vietnam, six years after the financial crisis, is it finally admitting to a property bust and a banking system problem,” he said.
“And in the banking sector, rather than hiding behind a number of non-performing loans that they claim is 3 per cent but everyone else thinks is in double digits, banks are admitting to the real situation.”
He said this situation was akin to Dubai, which saw the share price of banks “double in six months”.
The manager also said property was starting to “turn a corner”.
“We know we are early and the banks won’t be posting great results for two years because they will be making provisions for bad debt,” he said.
“But the stockmarket will start to look through that.”
Mr Bell said many of the banks in Vietnam were also part-owned by the government, which had recently stated its intention to privatise its stakes or sell them to investors.
“We might see foreign banks coming in and taking stakes and that will give the businesses the equity and the expertise they require,” he said.
Inflation in the country also appeared to be under better control now, Mr Bell noted. It reached an all-time high in Vietnam in 2008 when it hit 28.2 per cent but is now 3.6 per cent as at September, with the average from 1996 until now being 7.2 per cent.
“We are at the bottom of the cycle now,” Mr Bell said, “and about to enter the next one.”
Elsewhere, Mr Bell said he had become keener on Argentina, in spite of its recent spat with a set of US investors concerning a dispute over bond coupons.
The South American country has been in a battle with a group of US investors, led by NML Capital, a subsidiary of hedge fund Elliott Management. These investors, known as ‘holdouts’, are demanding payment of their initial capital, as they did not accept their debt being restructured when the country defaulted in 2001.
The row took a turn recently when US judge Thomas P Griesa ruled Argentina could not pay interest payments to investors who accepted a restructuring of their debt, in spite of the country putting money aside to do so.
“[Argentina] has isolated itself from the outside world and foreign capital is not present there,” Mr Bell said.
“The reason stocks and bonds have not reacted to the latest default is because the current president Cristina Fernández de Kirchner will finish her second term in October next year.
“Everyone is looking through the situation now to a change in politics.”
Mr Bell said he had met one of the three candidates who will replace Ms Kirchner and all were “pro-business – or more so than the current president”.
The manager invests in American depository receipts, which are listed in the US and provide access to Argentine companies.
OTHER COUNTRIES BELL IS KEEPING AN EYE ON
Saudi Arabia
The manager has experience of investing in Saudi Arabia in his Middle East and Africa Equity fund and brings that to his Frontier Markets fund.
He has a 9 per cent weighting to the country in spite of it not featuring in his benchmark MSCI Frontier Markets index, as it is instead part of the Gulf Cooperation Council (GCC) Countries index.
The manager said it was a deep and liquid market to invest in, adding the government was investing heavily to create jobs for a young population.
Mr Bell also said that because its currency is pegged to the dollar, the market would be less impacted by rate rises in the US and the strengthening of the dollar.
“Rising interest rates will benefit the banking system, which is a third of the investment opportunity,” he added.
Nigeria
The African country is one of the biggest components in frontier markets indices. Mr Bell had a 15.5 per cent position in this country at the end of August, 4 percentage points underweight the benchmark.
The manager said that while Nigeria is his biggest absolute country weighting, investors “need to be careful of the political cycle in African countries”. The country has an election coming up in February, but Mr Bell said candidates can promise a lot in order to get elected and then not follow through.
“Also, oil dominates its revenue at the moment and the price of oil is falling,” he said.
“Investors need to be cautious for the next few months there, but in the longer term we are fine as there is a structural story.”
Kuwait
The manager has Kuwait as his second-biggest country weighting at 11.4 per cent but is still 13.9 per cent underweight the benchmark.
Mr Bell said the economy was still “struggling with the fallout from the global financial crisis and political hiatus since”.
He also said it was a “problem” finding companies he felt he could invest in, adding even though he had a fairly large weighting in the country this was split between two holdings: financial services and cable TV business Kuwait Projects Company, known as Kipco, and the National Bank of Kuwait.
