Tags: Agarwal | BRIC | Africa | frontier

Monty Agarwal to Moneynews: Africa Is Home to Emerging Markets’ Next Frontier

By    |   Wednesday, 17 Oct 2012 10:28 AM

Governments in big emerging economies like India and China have taken steps to cool their once red-hot growth rates in the recent past, but markets in Africa and the Middle East are at the dawn of a new age of growth and returns, said Monty Agarwal, managing partner and chief investment officer at MA Capital Management.

China has tightened policy to cool growth rates and make sure inflation rates remain in check, while India has done likewise recently.

Such moves cool off gains in stock markets.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

In fact, the big emerging countries of Brazil, Russia, India and China, collectively known as the BRIC economies, have seen stock-market rallies wane as of late.

The iShares MSCI BRIC Index lost an annualized 2.45 percent over a three-year period ending Sept. 30, while the iShares MSCI’s broader emerging-markets index gained 3.13 percent during that same time, according to The New York Times.

Other studies paint a similar picture.

The Class A shares of Goldman Sachs’s BRIC fund lost an annualized 0.73 percent during that the same period, while those of a Templeton BRIC fund lost 0.67 percent, The Times added, citing Morningstar data.

“With the BRICs, if you look at the governments, for example, in India and China, they have been fighting inflation. So unlike the U.S. and Europe, where we have been introducing stimulus, both China and India have been tightening policy and trying to fight inflation, which is never good for asset markets,” Agarwal told Newsmax TV in an exclusive interview.

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“The area where I want to talk about is the next generation of emerging markets called the frontier markets. If you look at some of the frontier markets of Africa, the Middle East, etc., there are up 25 to 30 percent for the year so far,” he added.

“The S&P is up only 15 percent, and [these frontier markets] have soundly beaten the S&P. So Africa is one of my favorite emerging markets, not just over the next year but over the next decade.”

However, when approaching any asset class, an investor must do a little homework.

In a world marked by low yields, investors have been willing to take on risk to get more return.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Take Venezuelan debt, which has seen yields soar to around 12 percent and where the government has been willing to pay.

“Countries like Venezuela or Brazil and other emerging markets where interest rates are high, they do offer higher yield, but remember, when you are an investor buying foreign bonds, you are taking foreign currency risks,” Agarwal noted.

If Caracas devalues its currency, the bolivar, to narrow deficits, the investor loses.

“Whatever you made on the yield, you just gave up on the currency. So that is one of the biggest dangers, and the second is obviously the local government’s policies that could lead to inflation, and the value of your bonds could go down quite sharply,” Agarwal said.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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Governments in big emerging economies like India and China have taken steps to cool their once red-hot growth rates in the recent past, but markets in Africa and the Middle East are at the dawn of a new age of growth and returns, said Monty Agarwal.
Agarwal,BRIC,Africa,frontier
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2012-28-17
Wednesday, 17 Oct 2012 10:28 AM
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