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Even North Korea FRONTIER MARKETS EVEN NORTH KOREA Frontier market investors have arrived in countries under sanctions and embarlroes' such as Iran and Guba, even those without stock markets, such as North Korea and Myanmar. Stefanie Eschenbacher investigates the investment opportunities. NORTH KOREA IS investable, Meanwhile, Myanmar revealed crippled the country. Ramin and this time it is not just a hoax plans to open a stock exchange Rabii, the managing director at Turquoise Partners, which is by a US website - The Onion following nearly half a century once declared the North Korean of military rule. Stocks that give based in Teluan, manages almost all foreign investments in the supreme leader Kim Jong Un "the exposure to Myarunar but are sexiest man alive" (and China's Iisted in third-countries, such Teluan Stock Exchange. "lran is People's Daily fell for it). as Singapore and Thailand, are the most misperceived country on high valuations. COMMUNIST in the world," Rabii says. "The Mongolian oil companY HBOiI already trading CA.PIT.U,: recently established ties with Iran, however, appears to toP There de ethical potential, once salctions are lifted, and reputational the most isolated and secretive the list of desired investments, concerns when it is enormous." comes to coutries its uncertain future and The Teluan Stock Exchange is country of aII, and is now trying despite Iile North Kolea, to entice foreign investors. decades of sanctions that have Iarge and liquid, with a market 26 Autumn 2014 capitalisation of $I45 billion, iron ore, and Khuzestan Steel and Commercial Bank and Baghdad including the junior market. Rabii MCIC, which produce steel and Soft Drinks. Kahm says these grow says interest from EuroPean, Asian copper, respectively. companies have managed to and evenAmerican investors has top and bottom line, despite tough increased since reformist Hassan IRAN TUND market conditions. Rouhani was elected president Known for the Iraq fund it "Iraq has actually been one Iast year. "We are hopeful about Iaunched four years ago, FMG, of the main beneficiaries of the the negotiations that are going which is headquartered in Malta, increased interest in frontier on," Rabii says. has also explored the possibilitY markets over the past couPle of "On both the US and the Iranian of an Iran fund. Henrik Kahm, years," he says. side, there is a genuine will to get an investment analyst, artd his Honq Kong-based Asia Frontier to some sort of resolution." colleagues even travelled to lran. Capital, which pursues several Investing in Iran is legtal, even "The market is solid, and we frontier markets in the region, under current sanctions, except see interesting companies that including lraq, has also has sent for US investors. Truquoise are attractively valued, but that staff to Iran. Partners has no US investors, and is for a reason," Kahm saYs. "The Thomas Hugger, the chief the fund is not marketed to them. opportunity in Iran is due to the executive officer, dropped Plans like to "We have a strict sanctions fact that it has issues with foreign to invest, but says he would compliance policy, which means exchange and sanctions, and the do so as soon as the sanctions are we do not invest in any comPany second those issues disaPPear the lifted. Meanwlule, he has his eYes that is under European Union market may rebate." set on off-benchmark investments, or United Nations sanctions," FMG already had to overcome such as Nepal and Bhutan. Rabii says. There are practical challenges when it launched The Nepal Stock Exchange challengres, too. its FMG Iraq fund - the onIY is comparatively Iarge and Sending money back artd depositary in the countrY is the Iiquid, while the Royal Securities fourth is difficult: investors need Iraq Depositary Centre. Exchangte of Bhutan is small, but to get clea.rance from their local This means the fund could not home to what Hugger says are treasuJy once it exceeds a certain be set up as Ucits. It is domiciled attractively valued comPanies. amount, and they camot use in Bermuda. Neither of the markets is currently any bank charurels. Deutsche Iraq is once again engulfed in a open to foreigners. Bank, Standard Chartered and "These markets are less BNP Paribas have recently come correlated, and there are no under fire for allegedly violating II WE ARE.ELSO LOOKING AT foreigners," he adds. sanctions and embargoes. MYT,NMAR, BUT A,I{YTHING REI,ATED Investing in stocks listed in (T Most of the money Turquoise TO MYANMAR IS EXPENSIVE. third countries is common among Partners currently manages on frontier market investors. Asia Hirn, East Capital behalf of its 90 investors was Karine Frontier Capital invests in the raised between 2005 and 2010 Matdives via Aitken Spence Hotel when there were no EuroPean Holdings, Iisted on the Colombo Union sanctions. Stock Exchange in Sri Lanka. "Today, raising firnds is difficult civil war, but Kahm saYs the fund It also invests in tllree of the the Port for us, not necessarily for legal has seen few outflows. Extremist companies listed on reasons, but for practicality," he group Islamic State has seized Moresby Stock Exchange in PaPua adds. "Iran itself is, in terms of large swathes of territorY in Iraq New Guinea - BSP Bank, Credit sophistication and regulation, not and Syria over the past couPle of Corp, and City Pharmacy - and in that derives a frontier market." months, prompting another US one listed Australia Rabii says the most compelling military intervention its revenues from doing business investment opportunities are "We have probably seen the in Papua New Guinea. and in natural resources - Iran is worst on the stock market on a Yoma Strategic Holdings estimated to have the largest year-to-date basis and do not Interra Resources are, amonlJ but combined resources of oil and expect the situation to deteriorate, others, Iisted in SingaPore, give exposure to Myanmar. gas - as well as in minerals and but if it does deteriorate, we will consluner sectors. There are large face outflows," he says. Hugger says all of the countries in are mining and metal-producing The FMG Iraq fund has core Asia Frontier Capital invests companies, such as Chadormalu positions in blue chip comPanies, challenging; with the excePtion ) and GoI-E-Gohar that produce such as the Bank of Baghdad, Gr:If ofCambodia, every one has fundsglobalasia.com 27 TRONTIER Mfi,RKETS restrictions on either foreign East Capital decided to broaden during every board meeting of ownership or repatriation. the mandate of its Luxembourg- her ambitions. Asia Frontier Capital needs a domiciled, Ucits IV-compliant "Bangladesh is the most tax adviser for its investments in East Capital Emerging Asia cum.bersome market we have Bangladesh and Pakistan because Fund to include a numlcer of new tried to enter so far," she adds. both countries charge capital markets, such asVietnam, Sri "We are also looking at gains tax, although in Banqladesh Lanka, Bangladesh, Pakistan, Laos, Myanmar, but anything related to the tax applies only to foreign Cambodia and Myanmar. Myanmar is expensive - people investors. In other countries, there Both lawyers and custodians are excited about it." are issues with custody. were sceptical of Hirn's plans - Daiwa Securities Group and the "ln the smaller countries we while the lawyers were mainlY Tokyo Stock Exchange agteed either use local custodians, like in concerned with Myanmar, the back in 2012 to help set up the Bangladesh, or we own the stocks custodians objected to Cambodia exchange, after Myanmar had directly at the central depositary," and Laos. started to open up. The stock Hugger says. The Cambodia Securities exchange inYangon is scheduled "In Iraq, Cambodia and Laos, Exchange in Phnom Penh recentiY to open in October next Year. there are no foreign custodians saw its second listing while only Myanmar already has an over- at all, which means that our large the-counter bourse, the Myanmar competitors cannot invest there." Securities Exchange Counter, with Hugger says the Mongolian oil DI WE BOUGHTTHE INIIESTMENT two stocks, but most are listed in trading and processing company BEC.trUSE OTTHE C.ESHVALUE INTHE third-countries. HBOil, which recently took an BA.NK, BUTTHE COMPAI{Y HAS r, indirect 20% stake in the Sungri CI.T,IM ON CONFISCATED PROPERTY CUBAN RTTIOLUTION refinery in North Korea, has IN CUBA. TT East Capital invests in a cement caught his attention. company, Lucky Cement, and Thomas Herzfeld, Thomas J. Herzfeld Aduisors Former corLrnunist Mongolia J. a power company, Hub Power, has had diplomatic relations with in Pakistan, an increasingly North Korea for years, and now popular country. Hugger says seeks to power its miningJed three stocks are listed on the Lao Asia Frontier Capital sold well- boom.The investment comes as Securities Exchange. performing consumer stocks in North Korea's diplomatic reiations The exchanges are amonq the Pakistan because they became too with its most important ally China smallest in the world - but the expensive amid increased interest are cooling. Seychelles Securities Exchange, from largter investors. Aminex, which is listed on which launched two years ago, has The Havana Stock Exchange the London Stock Exchange, no listed companies. A.l1 three do closed more than 40 years ago got involved in a North Korean have Facebook pages, however. during the Cuban Revolution - the exploration prograrune a decade Hirn also recently went on a closest thing the country has to a ago, but withdrew in 20I2. trip to Bangladesh to explore trading floor is the ttuiving biack Ulaanlcaatar-based HBOiI is now opportunities there, but this has market in La Cuevita. trying to entice foreign investors, not materialised because no Thomas J. Herzfe1d, the founder but Hugger, who recently returned custody is in place.
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