William Gamble
The boom in emerging and frontier markets may end in tears

Are global investors, enamoured of emerging and frontier markets, ignoring the many negatives?

1. The recent rise of Frontier Markets has been due to a commodities and consumer credit boom. As China slows and the Fed tightens, both are going away.


2. Frontier markets are relationship based (as opposed to rule based) systems. They have economically inefficient legal infrastructures that lead to asymmetries of information and distort allocations of capital. This is a recipe for boom and busts. Investors in Brazil had to wait more than 20 years after its bust for it to regain respectable growth.


3. It is very difficult for retail investors to find vehicles to invest in Frontier Markets. For example one of the best recently performing markets has been the UAE which has increased 28%. The safest way to invest would be the DFM General Market Vectors Gulf States Index ETF (MES). But it is small ($11 million) and represents other Gulf States. It was up only 16%. Other markets that did well this year include: Argentina 27%, Nigeria 19%, Kenya 15% and Botswana 16%. But none have their own ETF.


4. These markets (and the BRIC markets) are usually concentrated in a few companies that are often state owned. These companies are invariably financial or commodities. They often reflect global not local conditions.


5. The corporate governance is dreadful. The regulatory regimes are appalling. They are all exceptionally corrupt. If the economy is growing, that means that someone is making money, but it may not be investors.


6. The demographic advantage of hoards of young people is more of a disadvantage than advantage. Many of these countries’ sole export are commodities. When it is easier for the elite to extract profits from the ground rather than the economy, there is little incentive to create the institutions for sustained growth. This leads to a plethora of ill educated, unemployed, frustrated and angry young men who are a threat to social stability.


7. These markets are very volatile and subject to every sort of financial abuse from insider trading to outright fraud. If you are very lucky you might catch an updraft, but don’t count on it being sustained.


The first emerging markets boom occurred in 1824. After the Napoleonic wars interest on British government bonds (consuls) fell to 3%. As a result there was a search for yield. Investors bought into the bonds of newly created countries like Mexico, Brazil, Columbia and Guatemala. These bonds were yielding about 6%. By 1826 the market value of Columbia bonds had fallen 50%.

(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)




3 years ago

I have to admit, your article is VERY subjective, lacks common sense and I suspect it is agenda driven. It is good your title points out they may (or may not) end up in tears. A solid analysis would go deeper into the drivers behind the hype, your anticipated trends and rationale and possibly, as a strategist suggest how investors could profitably invest in these markets. ALL markets are risky, remember 2008? I do not know who is sponsoring your negative campaign for Frontier Markets. Unless your goal was to create a buzz, once again this article is misleading.

Government tweaks new Coal Distribution Policy

“Taking into account the overall domestic availability and the likely actual requirements of the TPPs, it has been decided that FSAs will be signed for the domestic coal quantity of 65%, 67% and 75% for annual contracted quantity for the remaining four years of the 12th Plan”

The Indian government has made changes in the New Coal Distribution Policy in view of the presidential directive asking state-owned Coal India Ltd (CIL) to enter into pacts for assured supply of fuel to power firms ms 78,000MW capacity.


“Government has approved a revised arrangement for supply of coal to the identified thermal power stations (TPPs) of 78,000 MW. Taking into account the overall domestic availability and the likely actual requirements of these TPPs, it has been decided that FSAs will be signed for the domestic coal quantity of 65%, 67% and 75% for ACQ (annual contracted quantity) for the remaining four years of the 12th Plan,” according to an official memorandum.


Earlier, the Policy said CIL would supply 100% of the committed quantity to power plants at prices to be notified by the coal PSU.


It also said that in order to meet the domestic requirement, CIL would import coal as required from time to time, if feasible and adjust the overall price accordingly.


Highlighting the amendment in the policy the memorandum said, “To meet its balance FSA obligations towards the requirement of the said 78,000 MW TPPs, CIL may import coal and supply the same to the willing power plants on cost plus basis. Power plants may also directly import coal themselves, if they so opt.”


“The New Coal Distribution Policy... stands modified,” it said, adding that “CIL and its subsidiaries and SCCL are advised to take further action accordingly.”


The Cabinet Committee on Economic Affairs (CCEA), chaired by prime minister Manmohan Singh, on 21st June asked CIL to sign FSAs for a total capacity of 78,000 MW including cases of tapering linkage, which are likely to be commissioned by 31March 2015.


Last year, the government issued a presidential directive asking CIL to supply at least 80% of the quantity committed to power companies.


SEBI to expand workforce for providing swifter action

While an independent consultant recently suggested to SEBI that it increase the headcount by more than 50% within 2-3 years, the regulator now aims to expand its workforce at a faster pace

Having been given greater authority to take on market manipulators and fraudulent schemes, the Securities and Exchange Board of India (SEBI) has begun the process of ramping up the headcount to around 1,000 for faster and more effective execution of powers.


While an independent consultant recently suggested to SEBI that it increase the headcount by more than 50% within 2-3 years, from about 600 employees currently, the regulator now aims to expand its workforce at a faster pace, a senior official said.


The government’s decision to grant greater execution powers and a larger oversight role for potential investment frauds would require SEBI to have a much larger workforce, and the regulator would soon begin hiring officers and other staff members across its various departments and offices, he added.


The regulator has begun internal consultations on its workforce requirements, while it is also considering tapping outside talent pools on case-to-case basis, sources said, adding that SEBI has also begun the groundwork for a large number of prosecution cases it would pursue soon.


A number of entities have not honoured SEBI directives in the past with regard to the payment of penalties, refund of money to investors and other orders. They include entities related to the Saradha and many other cases. SEBI is now working to fast-track its prosecution and recovery cases in these matters, sources said.


Even before grant of greater powers earlier this month through an Ordinance, SEBI had informed its board last month that an increase in headcount is required for the future manpower requirement to take the full ownership of regulatory oversight of all investment schemes, staff requirement in regional offices as well as local offices.


The market regulator had further said that its staff strength also needs to be enhanced to meet its future role and functions, especially when seen in the context of resource allocation to its peer regulators.


The capital market regulator is opening local offices on a pan-India basis for enhanced investor awareness and services.


Speaking at SEBI's silver jubilee celebrations in May, finance minister P Chidambaram had also emphasised on the need for augmenting staff strength at SEBI.


“The country, the economy and the market are too large and are poised to become larger. We need far more than 600 men and women to regulate the stock market,” Chidambaram had said.


On the same occasion, prime minister Manmohan Singh also said that the size and sophistication of the Indian securities market had been increasing at a very rapid pace and SEBI also needs to move ahead accordingly in terms of human and technological capabilities.


Expanding SEBI’s mandate and powers in a major way, the government has now allowed it to pass orders like search and seizure, attachment of properties, arrest and detention of defaulters and pass disgorgement directions to recover the wrongful gains made in contravention of laws.


At the same time, the government has also allowed SEBI to seek information from other regulators within India and abroad with retrospective effect. It paves the way for collection of details pertaining to cases pending for over 15 years now.


In another retrospective change, which forms part of the Securities Laws Amendment Ordinance promulgated by the president last week, individuals and companies being probed by SEBI can settle their pending investigations. Such settlements can be undertaken in cases that are currently pending for more than six years.


SEBI is also gearing up for a large number of requests for such settlements, which have not got greater legal sanctity after promulgation of the Ordinance on securities laws.


To tackle the growing menace of Ponzi schemes being floated as Collective Investment Schemes (CIS), the rules have also been amended to classify any money collection of Rs 100 crore or more as CIS operation. SEBI has been given powers to crack down on illegal investment schemes floated by individuals as well, as against companies only as of now.


However, all government-notified schemes would be out of the Collective Investment Scheme framework.


The changes are part of as many as 22 amendments made by the government in three main Acts governing SEBI and its operations—the Securities and Exchange Board of India (SEBI) Act, the Securities Contracts Regulation Act (SCRA) and the Depositories Act—through a 16-page Ordinance.


Among others, SEBI has also been given powers to pass disgorgement orders for amount equivalent to wrongful gains or to losses averted by contravention of regulations.


Besides, the regulator can now enter and search buildings, places, vessels, vehicles and aircraft of defaulters. Its officers can also break open the lock of any door, box, locker, safe almirah, etc to get information from suspected entities.


The Ordinance also paves way for setting up of special courts to expedite hearing of cases involving contravention of securities laws.


SEBI has also been given direct powers to attach properties and bank accounts of persons and companies failing to comply with directions, involving payment of penalties, refunds to the investors and other dues. The regulator can also order arrest and detention of defaulters in prison.



Dayananda Kamath k

3 years ago

it should be appropriate actions rather than swifter action.only appropriate actions will result in curtailing the recurring of such actions. today sebi is happy with any vague or misrepresenting reply given by the wrong doer for a complaint.eg in case of green ply industries my complaint is even though i have sent my right issue application intime and provided postal proof i have been deprived of my right entitlement.the registrar and company is writting about refund of application money and proceedures. and sebi has not done any thing so far.if you do not bring complaints to its logical end what purpose is served. the company has not given me my entitilement when i complained sebi has to ensure that my rights entitlement is honoured.

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