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Latest edition

Summing Up

Ewen Cameron Watt, Editor-in-Chief, Macro Forum, Actis, London

Why We Wrote This Report

  • Commonplace labels applied across global markets substitute simplicity for opportunity.
  • Labels including Developed Markets (‘DM’), Emerging Markets (‘EM’) and Frontier Markets (‘FM’) assume a non-existent homogeneity of investment and macroeconomic risk.
  • Labels are fine but there are too few of them to allow for genuine opportunity.
  • As a major, global, long-term, thematic investor with a focus on hard assets, Actis and our clients have real skin in the game.

Commonplace labels applied across global markets substitute simplicity for opportunity.

What We Recommend

  • We introduce six categories which we feel allow for more equitable assessment of opportunity.
  • Countries are assigned to a single basket each as an initial screen, and limited to those where Actis either has invested or may do so in the near future.
  • These assessments are based on a variety of criteria, including financial stability, macroeconomic and societal fundamentals and drivers of currency risk.

The Six Buckets

Global Influencers are major economies which are givers rather than takers of global investment risk. These are China, Japan and USA.

Big Middles are G20 members with substantial financial resource and resilience. These are Brazil, India, Mexico and South Korea.

Supply Chain Heroes are materially exposed to non-resources targeted FDI, so-called China plus One, and generally operate orthodox policies. We nominate Malaysia, Philippines, Thailand and Vietnam.

Stable but Small. Size means these countries, despite having sensible policy mixes are exposed to risks from larger economies. We include Bulgaria, Lithuania, Morocco, Romania and Uruguay.

Natural Resource Winners are materially net exporters of one or more commodities. We include Chile, Colombia, Gulf Cooperation Council (GCC), Indonesia, Peru and South Africa.

Structurally Challenged are countries where past policy decisions and/or income levels have created material macroeconomic and currency volatility. We include Egypt, Ghana, Kenya, Nigeria and Türkiye.

Investment Conclusions

  • Establishing the main risks allows for asset pricing, selection and where appropriate effective risk mitigation.
  • This is not a framework for rejection or selection, rather a series of working titles to allow effective investment and portfolio management.
  • There is no consistent link between categorisation and level of return.
  • Capital flows towards effective risk return opportunities. Lower risk tends to attract more capital and potentially lower returns via crowding out.
  • A successful investor can manage selection, mitigation and opportunities given a clear initial framework.

A successful investor can manage selection, mitigation and opportunities given a clear initial framework.

How the report is Organised

  • Section 1 ‘Definition and Proposition’ describes the six categories and the basis for each selection.
  • Section 2 ‘Proving the Case’ is a deeper dive into the factors and risks for each categorisation.
  • Section 3 ‘So What?’ states our basic conclusions from the paper.

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