Frontier Markets Hold Deep-Value Treasures According to Caglar Somek

By on January 30, 2013

Caglar Somek - Caravel Global Portolio Mutual FundInvestors are finding it increasingly difficult to find bargains in financial assets as markets rise in tandem. One area which has underperformed since 2009 is frontier markets, according to Caravel Management Global Portfolio Manager Caglar Somek. In an interview on Bloomberg Television’s “Money Moves,” Somek provides the bullish case for this seemingly risky corner of the stock market.

Somek said frontier markets are attractive on a dividend yield basis and also for their growth prospects.

Somek indicated that China’s economy has impacted the growth rate of frontier markets by its use of commodities which has increased imported inflation, but as it transforms into a consumer-led economy this imported inflation will be dampened.

Somek said you can buy growth companies in frontier markets with strong balance sheets at value type of multiples. He added that these inefficiencies are hard to find in the developed markets.

The performance of Somek’s fund has been impressive since its inception in 2004 and the graph below shows the relative underperformance of frontier markets during this timeframe:

Caravel Global Portfolio versus frontier markets

The interview (video below) continued with Somek commenting on how he manages the risk of investing in frontier markets, the countries he chooses to invest in, and several stocks his fund is buying (Bangladesh’s Titas Gas Transmission and Distribution Company trading at a PE of 6; and a leading IT provider in Vietnam, FPT Corporation).

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