The pair are currently 2.7% short Nigeria in their OAKS Emerging and Frontier Opportunities fund and are trying to find ways to become more exposed to the country’s struggling outlook.
‘We would increase our Nigeria short exposure if we could, but it’s difficult to add more shorts. However, we have found another way to increase our exposure by shorting a South African company that has more than half of its business in Nigeria,’ says Bokor-Ingram.
Nigeria is Africa’s largest oil exporter and sends about 40% of its oil to the US. Despite this, Nigeria relies on imports for around 85% of its domestic consumption and, due to a rise in terrorist activity, falling oil prices and production rates, the country hasn’t been able to make enough dollars to pay for its imports.
Bokor-Ingram says a situation like this would usually result in a country floating its currency and letting it devalue, to enable local manufacturers to make more money via exports.
‘They didn’t let the currency devalue because they believe this would show signs of weakness. At some point, the economy is likely to collapse further. It will either continue to implode or they will devalue the currency and we are unlikely to change our view on this anytime soon,’ he says.
Both managers have their own money invested in the fund, and Bokor-Ingram says the only thing that would make them change tack is if the stock market failed to reflect the economic conditions
‘If the currency devalued and the country bought in proper economic policies, it could start to grow again very easily, but right now we are sticking to our outlook,’ he says.
The long and the short
The managers’ approach is gaining support and their fund grew by €10 million between September and October this year to stand at €55 million.
The performance figures bear out this increased interest, as the strategy has gained 24% over the three years to the end of October versus 3.3% from the average manager in the Emerging Market Equity including Asia category.
The fund has 40-50 long positions and 10-20 short holding. Currently it is 52% long, with exposures to countries such as Argentina (9%), Georgia (6.7%) and Pakistan (12.2%). The pair split responsibilities, with Bokor-Ingram focusing mainly on Africa, while Böttcher looks at the Asian market.
Both managers meet around 500 companies per year, 30% in London and 70% on the ground in emerging and frontier market countries.
One of the countries they are most impressed with is Argentina, which they say is the fastest reform story they have ever seen and they believe this is only the beginning of the nation’s evolution.
‘Argentina has boomed and busted so many times. The most severe was the bust in 2001, which it really struggled to recover from, as the previous socialist government cut itself off from the financial market.
‘President Mauricio Macri took over a country in an absolute mess, which was bust in terms of not having any liquidity, but, on the other hand, it had hardly any foreign debt. Macri changed the whole situation within a week of taking office,’ says Böttcher.
He believes there is still more reform to come from Argentina but the second phase of change needs to include plenty of external investment.
‘They need a return of foreign investment and we are excited about the opportunities opening up here,’ he says.
One area the managers are looking at is Argentina’s energy sector and how the electricity vs cable TV prices are playing out in the market.
‘When we speak to our brokers in Buenos Aires, they tell us their monthly electricity bill is about a dollar, and they have big houses which use a lot of energy. Meanwhile, their cable TV bill is around $70 a month.
‘People become very upset when their electricity bill rises but they pay much more for cable TV, this is what needs to be reformed and we watching this area,’ says Böttcher.
The duo says reforming companies need to be re-evaluated and they feel very positive about their portfolio. ‘There is upside in certain areas and if you add Nigeria into the mix, we are in a great position,’ says Bokor-Ingram.
This article originally appeared in the January edition of Citywire Selector magazine.