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Walter Marlowe on investing in frontier markets

Written by Ashwin Rattan Friday, 13 April 2012 11:49
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The definition of frontier markets is loose and I feel very strongly that not all Frontier Markets are equal.

 

Industrial Materials, Metals and Mining: 

 

I’ve been a consistent investor in and advocate of this sector since 2000. Take a look at the stock market page now, look at the 52 Week Hi-Lo stats for companies in the sector (e.g. Anglo American, BHP, Rio Tinto, Vedanta, Xstrata, Newmont Gold and so on). What you will see is that sector is trading pretty close to its 52 Week low.

 

 Back in 2007 – 08 the sector collapsed and then came back strongly and the 52 Week high prices are a reflection of that resurgence.

 

The point here is; Is there a value opportunity now or in the near term – should we be buying natural resource companies?

 

The answer is, I believe, one of timing and I don’t think we’re there yet.

  • The fundamentals are actually very good over the longer term. Production capacity is constrained, pricing power is high and if China continues to grow at even 5% or 6% p.a. and the US resolves its growth and debt problems the outlook is extremely good
  • Historically, periods of high inflation (and we must be heading this way thanks to governmental money printing and currency debasing) stimulate high natural resource prices. This is probably partly due to the effect inflation can have on consumer demand for durable goods and partly because buyers see that while money creation is “unconstrained” the production of natural resources is often severely constrained

 The cautionary note here is timing.

 

The world’s economic problems and the fragility of the developed world financial system are not yet played out.

 

The Eurozone hasn’t secured any solution for Greece, Spain, Italy and Portugal.

 

Walter is the author of the forthcoming Thematic Investing (to be published Searching Finance autumn 2012)

 

He blogs @ http://thematicinvest.wordpress.com/

Last modified on Friday, 13 April 2012 18:23

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