- Asian, African exchanges beat expectations despite high levels of caution worldwide
Dubai: Sentiment on the major stock exchanges around the world may be gloomy but there is always a ray of hope.
Gulf News took a look at the exotic market places of the so-called frontier markets, and — lo and behold! — was surprised by their performance in times of economic difficulties and uber-cautiousness in the rest of the financial world.
One of the best performing stock exchanges in the first half of 2010 was the otherwise not-too-popular Mongolian exchange in Ulan Bator. The Mongolian stock index MSE rose 85 per cent in the period, mostly due to rising stock prices of commodity companies active in mining of iron ore, gold, coal and other precious basic materials.
International miners only recently discovered the potential of Mongolia, among them Ivanhoe Mines and Rio Tinto. They are about to exploit huge reserves in Oyu Tolgoy, a mining area in the southern Gobi desert.
However, stock trading in Ulan Bator is still restricted, especially for foreign investors. Turnover is low, and there are no stock certificates or funds listed.
The exchange, founded in 1991 to implement "the centre of the reform programme" which was set to privatise the state owned enterprises, is one of the smallest in the world. It has a market capitalisation of less than $100 million (Dh367.3 million).
Currently, the exchange has launched a cooperation treaty with the Singapore bourse "to collaborate for the benefit of the financial services industries in Singapore and Mongolia."
Following Mongolia, Sri Lanka's stock exchange was the second best performing among the frontier markets in the first half of 2010.
The Colombo All Shares index rose 60 per cent in the period, and a couple of analysts are excited about the potential of the South Asian country's economy.
Opposite to Mongolia, the market is open and easily accessible by foreign investors, apart from some restrictions at banks. Now that the civil war is over, the country is able to spend money on infrastructure projects to develop productive investments, renowned analyst Jim Rogers of Rogers Holdings said recently in a country analysis.
"Sri Lanka is now able to showcase its economic strengths after the war has ended," he said.
"Provided the integration of the Tamil minority works out, Sri Lanka's economy could grow by ten per cent on an annual basis," added Samir Mehta, funds manager at Silver Metis Capital in Singapore.
"The doors are open for foreign investments."
The most promising sectors in Sri Lanka at the moment are infrastructure and tourism, analysts added. Additionally, the country's government is not taxing capital gains.
Despite being one of the poorest countries in terms of the annual income of its population, the performance of Bangladesh's bourse in the first half of 2010 stood at outstanding 58 per cent.
At the Dhaka Stock Exchange (DSE), some 670 companies are traded at a market capitalisation of around $34 billion. The country was more or less spared from the global recession and country analysts pin their hopes on a projected 5-6 per cent annual economic growth in the coming years.
Goldman Sachs identified Bangladesh's growth sectors in a study recently as mobile telephony, textile exports and shipbuilding.
However, the country's infrastructure is underdeveloped and needs urgent improvement, the study said.
Regardless of that, based on foreign direct investments at a record high in 2009 and on planned government stimulus programmes amounting to $10 billion over the next ten years, the projections for Bangladesh's economic growth are about 8-10 per cent annually.
More outperforming markets could be found in Africa.
Kenya's stock index at the Nairobi stock exchange NSE rose 45 per cent in the first half of 2010. The country is seen by analysts as "East Africa's champion", based on strong growth of its export sector and due to a young and fairly well educated workforce.
Kenya wasn't too heavily affected by the worldwide financial crisis, a recent country report by German TV channel 3sat showed.
The country GDP rose 1.7 per cent in 2008 and 2.5 per cent in 2009 and the projection for 2010 is four per cent. The average growth rate over the coming five years is anticipated at 5.7 per cent by the International Monetary Fund.
The government is investing heavily in sea and land infrastructure projects. Kenya's export industry, strong in the fields of flowers, tea and coffee, is also booming.
Accessibility to the Nairobi Stock Exchange for international investors is easy since trade on the bourse was fully computerised in 2006.
Another promising African boom country among the frontier markets is Nigeria, mainly due to its rich resources of oil and some other commodities.
The NSE index of the Nigerian Stock Exchange in Lagos rose 42 per cent in the first six months of 2010. Analysts of Citigroup and HSBC said that Nigeria is seen as "the most attractive" among the frontier markets with a growing long-term potential.
High risk market
However, due to political instability and widespread corruption, they recommend it only for "courageous investors".
According to the World Bank, the country's GDP could rise 4.3 per cent this year. Nigeria's stock market is the second largest in the sub-Saharan region and fuelled by oil and financial stocks on current low valuations as well as international funds.
Ghana also showed a strong performance in the first half of 2010. The index of the Ghana Stock Exchange (GSE) rose 38 per cent in the period, based on strong performances of gold and agriculture (cocoa) stocks as well as banks and tobacco manufacturers.
The largest enterprise traded on the exchange is AngloGold Ashanti with a market capitalisation of around $7 billion.
However, investors need to keep in mind that trading volume at the only partly computerised GSE can be extremely low, which frequently causes extreme swings in stock prices.
source - http://gulfnews.com