2016 In Review Part 1: How Did Latin American and Asian Frontier Markets Perform?


The year has been an eventful one for markets, with global politics in focus more than before. Over the final three weeks of 2016, we will be doing a year-end review of how frontier markets have performed this year. We looked at first half performance in a previous post here.

To kick off, we begin with a look at Latin America and the Carribean, the best performing region, and Asia, which was bogged down by Southeast Asian countries this year.

Latin America and the Caribbean

Frontier stock markets in Latin America and the Caribbean were by far the most consistently excellent this year, leading the rest of the world almost start to finish. They averaged over 26% returns in local currency terms, and their currencies performed as well, resulting in USD adjusted returns of almost 23%.

The main reason for the quick start to the year was the rebound in metals prices, helping metals exporters like Chile and Peru in particular. It is important to note that for the same reason, Latin America was one of the worst performing regions in 2015, so this was a bounce back year.

Note that while Venezuela is in the table, we did not include it in the averages for the region. The data there is as per the official exchange rate for the Venezuelan Bolivar (VEF) of 9.9875 to 1 USD, which is still down 37% after an official devaluation in March. However, the real situation is much bleaker – according to the black market, the real rate of VEF has soared past 4000 to 1 USD, meaning an over 99% devaluation from official rates. This of course renders any stock market return worthless. We decided not to include it in any totals we have on our site as the 99% drop would be too much of an outlier.

Best Performing Market: Peru

Peru’s Lima General Index soared almost 60% higher on the year with the local currency also staying fairly stable. No country benefited more than Peru from the rebound in metals prices, particularly in gold. Copper and Gold are two of its biggest exports, and they both moved materially higher this year despite a late fall in gold in the second half of 2016.

Company to watch: Buenaventura (BVN: listed locally and on the NYSE)

As the largest publicly traded metals mining company in Peru, Buenaventura’s share price took off this year and is up over 160% YTD – at the peak of gold prices in August, the share price was up 280% YTD. It’s fortunes this year go a long way to explain the overall performance of Peru’s stock market this year.

Worst Performing Market: Venezuela

Venezuela is a disaster right now. The economy is in shambles with basic goods in short supply and the currency rapidly devaluing. The stories out of Venezuela are dire, and despite the ban on foreign journalists there have been very good articles written on the situation lately. We recommend reading this New Yorker piece to get a feel for the situation there right now.

Company to watch: US Companies with Venezuelan exposure

A lot of large US companies have been affected by the currency devaluation in Venezuela. When Coca-Cola needs to stop production of sugary drinks due to a lack of sugar, it is a red flag on investing in any stocks in Venezuela. We would wait until large US conglomerates resume operating normally in Venezuela before even considering investing in local companies. As a buy-low candidate, a resolution still seems very far away and as long as investments are in bolivars, it does not seem wise.


Asia was a tale of two halves in 2016. As a whole it was up 0.6% in local currency terms but down 1.6% with currencies factored in. On the performing side was South Asia, led by stellar performance in Nepal and Pakistan as both countries continued to move higher in multi-year trends. On the underwhelming side was Southeast Asia, particularly the newer exchanges with Myanmar a disappointing 38% down on the year – an issue we have covered in a previous post this year.

Cambodia and Laos continue to struggle, as poor valuations have been followed by a lack of momentum from no new listings. The Philippines under Duterte’s rule has resulted in some fear from foreign investors, leading to one of the worst performing currencies in Asia.

Asian frontier markets remain some of the most underdeveloped in terms of market data – we need to get it manually for three of them (Myanmar, Nepal, and Papua New Guinea) since they have not been picked up by Bloomberg yet. Papua New Guinea’s Port Moresby stock exchange does not even have an official index, so we have computed the equally weighted return of all the stocks on its exchange (16 in total) – it should be noted that almost half the stocks did not trade this year.

Best Performing Market: Pakistan

Pakistan’s stock exchange and it’s main index the KSE 100 continues to be a darling among frontier market investors. It is up another 38% this year, and is up a staggering 300% in the past 5 years with the general index passing 45,000 recently. This is despite net foreign investor selling on the exchange this year. Being designated an Emerging Market by MSCI certainly helped, and there has been interest from Chinese exchanges to buy a stake in the Pakistan Stock Exchange.

Company to watch: K-Electric Ltd (KEL)

K-Electric has been in the news most of the year as an acquisition target from Shanghai Electric Power Co., a Chinese state-owned enterprise. They agreed in October to buy 66.4% of the company from buyout firm Abraaj Group for $1.77 billion, another sign that Chinese firms are actively searching for value in Pakistan’s markets. The purchase amounts to roughly 10.20 rupees per share, still 7.5% over the current market price – the stock is up 26% on the year.

Worst Performing Market: Myanmar

There was a lot of optimism when the Yangon Stock Exchange opened this year in March, and Myanmar continues to be a place of intrigue as it plays catch-up with the rest of the region. But the performance of the exchange so far has been terrible, and it’s all due to its first stock: First Myanmar Investment Co (FMI). In fact, the other two stocks on the exchange are flat or small up, but FMI has managed to drag the whole index down. The positive is that with the lifting of US sanctions against Myanmar two weeks ago, the future remains very bright.

Company to watch: First Myanmar Investment Co (FMI)

FMI was the first stock listed on the Yangon Stock Exchange’s relaunch, and after jumping 32% in the first two days of irrational exuberance, the stock has plummeted to the tune of down over 48% on the year. Part of the fall was due to overvaluation, but the stock has held steady around 16,000 over the past quarter and its recent results showed strong growth. Revenues increased 50% yoy, and profit from operations jumped from negative 2.4 billion MMK to positive 2.5 billion MMK. With the total EPS of 207 MMK, this means FMI still trades at a P/E ratio of 77.

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