Frontier Markets: Meet the CIVETS

Yes, another stupid acronym for the “next” BRIC nations.  It’s fine at this point, the quality of the information from this research allows me to overlook the hokeyness.

From Knowledge@Wharton:

Building on the foundation of the well-known BRIC countries — Brazil, Russia, India and China — a new set of up-and-coming emerging markets is gaining attention. The so-called “CIVETS” countries — Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa — are now touted as hot markets because they have diverse economies, fast-growing populations, relatively stable political environments and the potential to produce outsized returns in the future.

I’ve written here extensively about my Frontier Markets theme; I’m a long-term investor along with my clients in several relatively obscure ETFs in order to catch these countries before they become darlings.

I prefer the index approach to picking individual foreign stocks because although I may give up single-company upside, I am gaining the safety of diversification.  Besides, when a nation (and its market) is being flooded with investor capital from around the world, that flood creates the proverbial rising tide environment in which you can pretty much own anything.

Let’s look at the CIVETS themselves before I send you over for the rest:

Each of the CIVETS presents opportunity and risk, according to emerging market analysts and Wharton faculty:

Colombia: Following years of high-profile drug wars, Colombia remains a small market, but has always been a dynamic economy with some key industries, including fresh flowers, oil and coffee.

Indonesia: The largest of the CIVETS, Indonesia has a huge, sprawling population and has already benefited from investment by the U.S., China and Japan, but political and social stability is never certain.

Vietnam: A low-cost alternative to China for manufacturing, Vietnam has ambitious plans to grow its economy despite a Communist government.

Egypt: Although Egypt has a well-educated, prosperous population in its Nile Valley cities, much of the country remains poor and the country has a high level of debt (80% of GDP). The political future beyond the rule of President Hosni Mubarek is cloudy, and the country could face religious turmoil.

Turkey: Not a destination for manufacturing because costs are already high, Turkey remains a promising regional center which has benefited from relative stability and ties to the West in a volatile part of the world. Membership in the European Union would be a plus, experts note, but religious turmoil might hurt its economic prospects.

South Africa: Although it faces problems with unemployment and HIV/AIDS, South Africa has strong companies, a well-developed business infrastructure and can serve as a gateway to southern Africa.

I find it interesting that Poland and Chile, two frontier markets that have been exceptionally good to me, aren’t on this list.  I also think the inclusion of Egypt may require a bit of rethinking.

Some interesting insights at the link below…

Source:

The New BRICS on the Block: Which Emerging Markets Are Up and Coming? (Knowledge@Wharton)

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