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Nigeria One of 2016’s Worst-Performing Assets

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  • Nigeria One of 2016’s Worst-Performing Assets

A stock index tracking some of the world’s riskiest, potentially fastest-growing investments has missed out on this year’s global rally, the latest sign of the upheaval reordering financial markets.

The MSCI Frontier Markets Index of 22 small stock markets including Pakistan and Nigeria has risen 1.4% this year as of Monday, including price changes and dividend payments. That lags far behind the Dow Jones Industrial Average’s roughly 18% total return for 2016, as well as the 8.4% gain in the MSCI Emerging Markets index of larger developing nations.

Though investors are warned that it is subject to considerable volatility, the frontier-markets index hasn’t gained or lost 1% in a day since June 28, the longest such streak since the second half of 2012.

The poor performance and placid trading underscore the tough environment that frontier markets face at a time of slowing global trade, tepid economic growth and increasingly nationalist politics that could limit movement of capital.

Gains in the Dow and the MSCI Emerging Markets index after sharp early 2016 declines suggest investors have recovered their appetite for risk.

But the lagging performance of the frontier index shows that tolerance goes only so far, reflecting the idiosyncratic risks of developing nations as well as individual countries’ economic challenges.

“Right now, you’re at the nascent stage of potentially a recovery of the globe, and those countries won’t recover until late in the cycle,” said Laura Geritz, chief executive of Rondure Global Advisors, a boutique asset manager with a focus on developing markets.

At a time when the dollar is rallying and commodities booming, frontier markets are weighed down by their heavy weighting in banks and other financial shares.

Among the top five countries in the frontier index, economies in Argentina and Nigeria are expected to contract in 2016, while Pakistan, Kuwait and Morocco are expected to post subpar growth relative to the past decade.

Thanks to the disappointing performance, investors pulled $840 million in 2016 from frontier-market funds through Dec. 21, according to EPFR Global.

Dramatic currency swings in 2016 in Nigeria and Egypt also sent a shudder among foreign investors. The Global X MSCI Nigeria ETF is down 39% so far this year. The African nation’s decision to devalue its currency by nearly 40% and adopt restrictions on dollar exports left investors with hefty losses.

Some managers say the frontier index’s underperformance has created a buying opportunity in many stocks. Frontier stocks are relatively cheap compared with their emerging counterparts. Over the past year, frontier equities traded at around a 20% discount to emerging stocks based on valuations, the largest gap since 2009, according to MSCI.

Many frontier economies are still expected to grow at a much faster clip than their counterparts in the developed or emerging world.

Demographics in places like Bangladesh, Vietnam and Morocco are favorable, likely pointing to growth in many consumer-driven sectors. At the same time, energy-exporting countries such as Nigeria and Kuwait are under the pressure to reform their economies given that oil prices are expected to stay low.

Dubai-based Duet FIM Partners Ltd., one of the largest frontier-market managers with $1.35 billion of assets, likes companies that can establish themselves as the retail industry becomes modernized. One of their picks is Olympic Industries Ltd., the largest biscuits maker in Bangladesh. The company has been rapidly expanding its production lines to churn out the premium cookies that locals are willing to pay top dollar for. In the third quarter, earnings grew more than 20% over the same period last year.

“If you’re picking the right companies, their stories are real growth,” said Matthew Vogel, chief strategist at FIM Partners, which has posted an annualized return of 8.9% as of mid-December, according to an investor in the fund.

The Harding Loevner Frontier Emerging Markets Fund has 4.4% of its assets invested in Safaricom, Kenya’s largest mobile network operator, according to portfolio manager Pradipta Chakrabortty. Backed by a 40% investment and the management team from Vodafone Group PLC, the company has built up the widest network coverage and the widest distribution reach in Kenya, helping it generate 46% growth in its mobile data revenue in the first half of the current fiscal year.

“When you have these markets where valuations have been cheap and underlying fundamentals not changed, it’s easier for you to buy them,” he said. The fund is up 1% through Dec. 23.
Yet many investors expect frontier markets to rebound only after a long and steady recovery in developed and emerging countries, which would eventually lead assets to trickle down into these small markets.

“It’s just a patience game,” Ms. Geritz said. “Once the dollar weakens, it’ll be a quick move in those markets.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Crude Oil Rises to $72 a Barrel on Strong Demand Recovery

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Brent crude oil - Investors King

Oil prices rose on Friday to fresh multi-year highs and were set for their third weekly jump on expectations of a recovery in fuel demand in the United States, Europe and China as rising vaccination rates lead to an easing of pandemic curbs.

Brent crude futures edged up 13 cents to $72.65 a barrel to 1145 GMT, a day after closing at their highest since May 2019.

U.S. West Texas Intermediate (WTI) crude futures were up 14 cents to $70.43 a barrel, a day after their highest close since October 2018.

U.S. investment bank Goldman Sachs expects Brent crude prices to reach $80 per barrel this summer as vaccination rollouts boost global economic activity.

The International Energy Agency said in its monthly report that OPEC+ oil producers would need to boost output to meet demand set to recover to pre-pandemic levels by the end of 2022.

“OPEC+ needs to open the taps to keep the world oil markets adequately supplied,” the Paris-based energy watchdog said.

It said that rising demand and countries’ short-term policies were at odds with the IEA’s call to end new oil, gas and coal funding.

“In 2022 there is scope for the 24-member OPEC+ group, led by Saudi Arabia and Russia, to ramp up crude supply by 1.4 million barrels per day (bpd) above its July 2021-March 2022 target,” the IEA said.

Data showing road traffic returning to pre-COVID-19 levels in North America and most of Europe was encouraging, ANZ Research analysts said in a note.

“Even the jet fuel market is showing signs of improvement, with flights in Europe rising 17% over the past two weeks, according to Eurocontrol,” ANZ analysts said.

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Energy

Africa Oil Week Remains Force of Good for Africa

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Hyve Group Plc, organisers of Africa Oil Week have confirmed that business opportunities and discussions at the 2021 edition will remain focused on driving investment into Africa for its sustainable socio-economic development, as it has done for the past 27 years.

The event which will temporarily move to Dubai for 2021 due to COVID-19 restrictions in South Africa will take place on 8-11 November 2021 and has support from key African stakeholders.

Atty. Saifuah-Mai Gray, CEO of National Oil Company of Liberia said “As an oil and gas hub, Dubai represents a huge opportunity for Governments to meet a high concentration of investors with the financial and technical capability to partner in our national upstream”

Africa Oil Week is known for driving deals and transaction across the African oil and gas sector, and after being forced to host the 2020 edition virtually, confirmation that a live event will take place in 2021 has delighted clients.

Miriam Seleoane, Assistant Director at the Department of Trade and Industry and Competition said

“The DTIC has supported the Africa Oil Week for many years. For 2021 we will be taking a delegation of 20+ companies to the Oil Week to advance partnership and investment dialogue between our South African businesses and international partners. Africa Oil Week remains a huge platform for the DTIC and our South African private sector”.

The event will run under the theme “succeeding in a changed market”, and it will be the only large-scale oil and gas event focused solely on Africa to run in person in 2021.

In a previous statement, the organiser cited Dubai as the “next best location” after Cape Town due to the exceptional progress made in the UAE’s vaccination programme. Dubai is also the leading financial centre in the Middle East, Africa and South Asia and presents an opportunity for attendees to meet with new capital holders, further driving investment into Africa.

The 2022 event will return to Cape Town, where organises have said it is the event’s “natural home” and to which they are strongly committed for the long-term.

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Crude Oil

Crude Oil Rebounds on Thursday After Slipping on U.S Weak Demand

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Crude Oil - Investors King

Oil prices rose on Thursday a day after slipping on data indicating weak U.S. driving season fuel demand as investors eyed upcoming U.S. economic data.

Brent crude oil futures were up 18 cents, or 0.25%, at $72.40 a barrel, holding just shy of a high not seen since May 2019.

U.S. West Texas Intermediate oil futures rose 11 cents, or 0.16%, to $70.07 a barrel, staying near its highest since Oct. 2018.

“The market is recovering impressively from yesterday’s dismal weekly EIA report, the drop in weekly gasoline demand was particularly disappointing,” said Tamas Varga, analyst at PVM Oil Associates.

“It will interesting to see whether the monthly OPEC report due out later will confirm last month’s upbeat demand assessment for the second half the year. If it does, as expected, it should support oil prices.”

Varga added that U.S. inflation data and jobless claims would provide more direction on the health of world’s biggest economy and clues as to whether the Federal Reserve might start tapering stimulus.

U.S. crude oil stockpiles that include the Strategic Petroleum Reserve (SPR) fell for the 11th straight week as refiners ramped up output, but fuel inventories grew sharply due to weak consumer demand, the Energy Information Administration (EIA) said on Wednesday.

Crude inventories that exclude the SPR fell by 5.2 million barrels in the week to June 4 to 474 million barrels, the third consecutive weekly drop. But fuel stocks were up sharply, with product supplied falling to 17.7 million barrels per day (bpd) versus 19.1 million the week before.

Implied gasoline demand fell to 8.48 million bpd in the week to June 4, down from 9.15 million bpd from the week before, but up from 7.9 million bpd a year ago, EIA data showed.

Weighing on prices, India’s fuel demand slumped in May to its lowest since August last year, with a second COVID-19 wave stalling mobility and muting economic activity in the world’s third largest oil consumer.

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