In this briefing:
- Uzbekistan Initiation: Value Hidden in Plain Sight
- Business Happenings in the Americas that May Be “Below the Radar” – Week Ending January 17, 2019
1. Uzbekistan Initiation: Value Hidden in Plain Sight
Uzbekistan’s economy is a frontier market stand out and has a large number of attractive characteristics:
- Uzbekistan’s stock market trades at a substantial discount to other frontier markets, though the extremely illiquid nature of the market makes it hard to trade. However, there still is foreign interest in the market.
- The IMF projects that the economy will grow by 5% during 2018 and 2019, and eventually reach 6% by 2022, though this is still below its historical high.
- Market reforms were spearheaded in December 2016 when the newly elected president, Shavkat Mirziyoyev decided to transition towards a market- oriented economy led by private sector growth, as the public sector was unable to create enough jobs. This represents a significant shift given that Uzbekistan had been a closed, centrally planned economy until 2016.
- Tourist arrivals grew by 91.6% during H1 2018, and this is poised to improve greater in the future due to the impact of the visa liberalization measures.
- Twin deficits have remained under control and Uzbekistan is one of few current account surplus frontier markets.
- Uzbekistan is also very attractive compared to other markets in the frontier space given that its minimum wage is only US$24/month, compared to around $70-75/month in Kyrgyzstan and Kazakhstan.
The market reforms that the country recently implemented will be a major catalyst for future economic growth and makes investment in this market appealing. Apart from strong growth, the market is also appealing due to its high foreign exchange reserves ( nearly 2 years of import cover), consistent CA surplus, and stable currency. My latest frontier and emerging market recap highlights the appeals of markets such as Bangladesh, Vietnam, and Egypt, while expressing concerns for markets such as Sri Lanka and Pakistan. Uzbekistan is a suitable addition given its stable macro/political picture, and the main negative factor of this market is the highly inaccessible nature of the equity market. The ADTV is less than $100,000, which is a far cry from other frontier markets like Romania, Sri Lanka and Kenya.
2. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending January 17, 2019
Highlights of significant recent happenings include:
- Substantive Deep Dive – Canada’s BlackBerry Ltd (BB CN) seeks to be the go-to provider of web Security: Why we believe investors should look at Blackberry as a way to hedge their exposures to the increasing list of companies who are susceptible to adverse impact from security breaches.
- Feeding the Dragon – Chinese buying of US firms brakes abruptly, obliterating the long-term trend, and now Japan has become the second-largest market for outbound M&A globally. Also, South Korean food giant Cj Cheiljedang (097950 KS) is continuing its aggressive expansion into the U.S. market
- Local News on Global Companies – Kroger Co (KR US) and Microsoft Corp (MSFT US) take on Amazon.com Inc (AMZN US) with digital grocery store experiment. “Wal Mart Stores (WMT US) plans to have enough online grocery pickup sites to cover 69% of U.S. households by the end of this month. Alphabet Inc Cl C (GOOG US)‘s proposes a “software-defined network” which is a new method of accessing the internet by removing the need for home routers, for the new Toronto neighbourhood it is planning. Mining companies are cutting back operations in largest coal region in the U.S., and Berkshire Hathaway Inc Cl A (BRK/A US), and Union Pacific (UNP US) will be adversely impacted.
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