Friday, July 20, 2012 3:34 PM

 
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Inexpensive, Under-owned & graduations = worth owning 
Strategically we have been and remain overweight EEMEA Frontier markets as we find the structural yet nascent asset class to offer an undemanding valuation entry point for what we believe is a fairly significant and still overwhelmingly under-owned long-term investment opportunity (in time, some of these countries will almost surely graduate to GEM). At this early stage of the ownership cycle and with limited direct links to Europe, we expect that this less correlated asset class will work in all but the most bearish global environments for risk appetite and for oil. Saudi & Nigeria remain our top structural picks and, in this globally uncertain world, we are also overweight Qatar on its yield and crucially, its USD peg.
 

Key Drivers for Frontier Markets - Saudi our top pick 
This report complements our introductory Frontier in the Sweet Spot by expanding on our Equity Investor's Guide to the EEMEA Universe to introduce macro and market drivers for each of the key EEMEA Frontier markets: Saudi Arabia, Nigeria, Qatar, the UAE and Kazakhstan. Based on historic correlations, we filter domestic and global sentiment indicators, commodity trends and economic data points to determine the most important drivers of the respective markets on both a 3-6 month and a medium term view. Saudi ranks best over both time horizons.  
 

Saudi, Nigeria & Kazak valuations all below norms 
We have created blended historic 12-month forward P/E and P/B data for all markets. Key EEMEA Frontier markets currently trade significantly below their historic average levels vs. GEM: The Saudi Tadawul currently trades on a 12-month forward P/E of 10.6x, which is a 13% premium to GEM. This is near a historic low premium and more than one standard deviation below an average 43%; Nigeria currently trades on a forward P/E of 9.2x, in line with GEM but well below a long-run average premium of 56%; Kazakhstan trades on a P/E of 4.8x, a 48% discount to GEM (vs. an average 33% discount). 
 

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