Citywire - For Professional Investors

Register to get unlimited access to all of Citywire’s fund manager database. Registration is free and only takes a minute.

Frontier markets star: where to find value in EM Asian financials

Frontier markets star: where to find value in EM Asian financials

Emerging Asian financials – notably in Vietnam – are growing in maturity and offer an exciting investment opportunity in a fragmented market, Citywire AA-rated Oliver Bell has said.

Bell currently holds more than double the index weight in Vietnam in his recently launched T Rowe Price Frontier Markets Equity fund.

In an investor update that centred on Vietnam and emerging Asia, the former Pictet fund manager said banking in the region has undergone impressive improvements in recent years.

‘Currently, the banking sector is very fragmented – state-owned banks have 40% – and only one bank has a double-digit market share. However, banks are now starting to own up to NPLs, which is encouraging,’ he said,

‘Additionally, the banking systems in many of these countries have been through a crisis in the past 20 years. Having learned from the painful experience of excess leverage and a severe bad debt cycle, lending practices have been improved, and banks, therefore, tend to operate on a more traditional basis.’

Aiming for long-term growth

Bell said discussions with banking groups in Vietnam had identified underlying growth is set to accelerate, although strong earnings growth will not be seen for the next couple of years.

‘In general, though, we see financials as a good area for investment. Financials can, in some respects, be considered a “levered” investment linked to an underlying economy.

‘A banking system operating within a growing economy with controlled NPLs is likely to be a good starting point if you wish to identify growing, profitable banks. We see many such examples in Vietnam and other frontier Asian markets,’ Bell added.

Vietnam currently makes up 10% of the fund compared to a 4.2% exposure in its custom benchmark, meanwhile financials accounts for 52% of allocation on a sector basis. Bell named Bank for Foreign Trade of Vietnam, which is a 1.8% position in the fund, as the strongest contributor to performance in December.

The T Rowe Price Frontier Markets Equity fund was launched in June 2014 and has lost 3.6% in US dollar terms over the seven months to the end of January. The broad index, the MSCI Frontier Markets TR USD, fell 14.7% over the same timeframe.

Bell earned his Citywire rating for the performance of the T Rowe Price Middle East & Africa Equity fund, which he took over from Christopher Alderson in October 2011.

The T Rowe Middle East & Africa Equity returned 57.2% in US dollar terms over the three years to the end of January 2015. This is while its benchmark, the S&P Pan Arab Composite TR, rose 38.5% over the same timeframe.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.