Frontier stocks range from Islamic banks in Bahrain to Vietnamese fisheries to Pakistani oil companies. Such industries are growing fast, but are still less integrated into global markets than peers in more-developed nations—and that’s their great lure at a time when the credit crunch is sweeping the globe. One study done by a pre- implosion Bear Stearns found that, between 2001 and 2006, equities in the United States and key emerging markets (including the BRIC) began to track one another more closely, but the frontier markets did not. That disconnect protects these backwaters from the financial turmoil emanating from the United States. “These regions have very limited exposure to subprime and credit concerns in other parts of the world,” says Joseph Rohm, a T. Rowe Price manager who focuses on Africa and the Middle East.
Frontier markets are still tiny; they now hold less than 1 percent of the money invested in stock markets worldwide. That’s small, but it’s about what China, India and the other big emerging markets held in 1987, when MSCI Barra first started tracking them as a group. The big markets now hold 12 percent of global market investments, and have grown fast from a very low base. Frontier markets could, too.
Newly rich investors in the big emerging markets have led the charge into the frontiers. Mark Mobius, a managing director at Templeton, says Korean investors—not European or American ones—led the call for a frontier fund, which is why Templeton’s first frontier market is currently available only in South Korea. That’s a potent signal of both the maturation of nations once considered “emerging” and the blossoming interest in frontier investing. Investors in Korea, Russia and the like “want to take the next step and see where they can find value,” says Mobius, “and they feel less fearful of frontier markets than someone in the U.S. would be.” When it comes to investing, fearlessness could be a valuable commodity these days. —Barrett Sheridan
Lurching Left: 100 Days Of Decline When Argentina’s president Cristina Fernández de Kirchner took office, pundits predicted that she’d be a moderate ruler: likely to continue the populist programs of her predecessor (and spouse) Nestor Kirchner, but also likely to ease strained diplomatic ties with the U.S.
What a difference 100 days makes. Now, Kirchner’s tacking even more to the left than her hubby and things couldn’t be chillier with Washington. Shortly after the election, she lambasted the U.S. for accusing her campaign of taking secret money from Venezuela. The ongoing scandal, plus her coziness with Hugo Chavéz, got Argentina kicked off the list for Condoleezza Rice’s recent South America tour—a snub to Kirchner’s ambitions to be an international player.
Kirchner’s also taking hits at home, where her short workdays have come under fire as the country suffers from rising inflation and an energy crunch. Looks like the new Evita may need some leading-lady lessons. —Brian Byrnes
China recently pledged to keep its one-child policy, ensuring that its birthrate will stay at the low end for developing countries. A look at how the most populous nation stacks up globally:
12.8 China’s projected birthrate, measured per every 1,000 people in the population, in 2010
1.8 Average projected birthrate in 2010 for the nations of Western Europe, the lowest for any region
8.4 Japan’s projected birthrate in 2010, the lowest rate for any nation, rich or poor
50.5 Niger’s projected 2010 birthrate, the highest. Sub-Saharan Africa is the fastest-reproducing region.
Casus Belli: Oedipus Wreck George W. Bush said lots of things about Saddam Hussein before the Iraq War, but nothing got more attention than his claim that “this is a guy who tried to kill my dad”—a reference to a 1993 Kuwaiti accusation that Baghdad had plotted to assassinate Bush’s father during a visit. Armchair psychologists have since cited Bush’s comment as his personal reason to gun for Saddam.
Bush’s claim has since become important for another reason: it’s about the only U.S. allegation against Saddam that hasn’t been disproved. But there are new questions. A just-released Pentagon study of seized Iraqi documents found that Saddam’s intelligence service kept remarkably detailed records of virtually all operations. But there was no mention of a plot against Bush Senior. “It was surprising,” said one source. Given how much the Iraqis documented, “you would have thought there would have been some veiled reference to [the plot].”
The absence isn’t conclusive, since the mission failed. “It would not have surprised me if the Iraqis expunged any record of [it]—it was an utter embarrassment for them,” says Paul Pillar, the CIA’s former top Middle East analyst. But it certainly doesn’t help Washington’s case. Nor will another omission: Pentagon researchers couldn’t find any records showing a “smoking gun” connection between Saddam’s regime and Al Qaeda—another principal cause for the war. In fact, the report shows that Saddam and his cronies were “paranoid and suspicious” of Arab terrorist groups. Seems they weren’t the only ones. —Michael Isikoff
Corporate Diets: Combating Metabo The Japanese government is trying to slim down—and for once, that’s not a political metaphor. A controversial law, set to take effect in April, will require company health-care operators to monitor employee waistlines through routine medical exams. Workers who demonstrate a high risk for diabetes and heart disease must seek further treatment—all in an effort to reduce ballooning costs for preventable “lifestyle ailments” and “metabo” (short for “metabolic syndrome,” a combination of high blood pressure, waistline fat and high cholesterol), which afflicts 9 million Japanese.
The law may signal a sea change for a corporate culture accustomed to long workdays and afterhours drinking with clients. Companies are starting to implement “anti-metabo” cafeteria menus and computer systems for workers to track their health. Mitsubishi Electric is creating a “Walking Rally” for employees to compete for prizes every month, and Toyota has invested $40 million in an educational center to promote lifestyle disease awareness. Looks like the sake crew may have to start ordering wheatgrass shots instead. —Akiko Kashiwagi
Modern Art: Warhol For Aliens To critics and fans alike, modern art can seem otherworldly—from embalmed animals and duct-tape displays to taxidermic wolf sculptures and fake exploding cars. Now, a new exhibit at London’s Barbican Centre plays with this sense of disorientation by presenting modern art as an anthropological case study for visiting extraterrestrials. “The Martian Museum of Terrestrial Art,” which runs through May, displays Warhol silk-screens and Damien Hirst sculptures with descriptions that poke fun at mankind’s primitivism. Paintings and sculptures are grouped into categories such as ancestor worship; spells and charms; icons, and ceremonial objects, making the art appear as pedestrian as Aztec burial masks or ice-age bone flutes in a natural-history museum. By imagining Martians as creatures who can’t grasp the concept of art for art’s sake, it throws our own befuddlement at certain modern works (why bother encasing a shark in formaldehyde?) into stark relief. —Christopher Werth
Liquid Assets: Is Wine The New Gold? In rough economic times the rich always scramble to protect their money in investments that feel safe and timeless (Picassos, gold). Now fine wine appears to be joining that list. Some analysts claim that a case of Latour is among the most resilient of alternative assets, with annual growth of at least 10 percent and possibly much higher. The value of Liv-ex 100, the fine wine trade’s main exchange founded in 1999, has grown 155 percent since 2001. In the past year, it’s up 37 percent as demand from Russia and China has kept prices competitive.
But wine assets are tricky. Though a 2000 Lafite (Liv-ex’s best-performing wine in 2006) rose in price from $10,000 to $20,000 a case, fantastic profits tend to be an exception. Not all varietals are created equal in financial crises. Experts recommend looking only at the best Bordeaux châteaux and only from top vintages, since these first growths make for the most consistent returns.
Even with Bordeaux blue chips, buyers face the risk that the wine won’t mature as well as predicted, whether from improper storage or the natural evolution of a particular vintage. Amateurs can always trade through wine funds, like the U.K.’s Fine Wine Fund, which have recently emerged to tap into the market’s potential. But their fees can rival those of hedge funds. Add the fact that the wine should be held three to 10 years—it’s hardly a get-rich-quick scheme.
Of course, most collectors are more interested in sipping the stuff than offloading it. In that case, there can’t be a more pleasant way to ride out the recession than with a maturing bottle of Petrus. —Katie Baker
