Yield of Dreams

Looking for Opportunity in Emerging Markets

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Bitcoin, the digital currency that passed the $200 mark this week, will be a “game changer,” says Michael Novogatz, co-chief investment officer for Fortress Investment’s Fortress Macro Fund.

In a surprise show of support for the often-mocked alternative currency, Novogatz told attendees of the UBS Global CIO Forum on Thursday that Bitcoin would find a home in the emerging markets and frontier markets space. “Come back in a few years and it’s going to be worth a lot,” he predicts.

In general, the frontier markets contain considerable opportunities, says Aberdeen’s Devan Kaloo. But the problem is they’re not vey liquid, he says, noting they’re not for everyone. For those with the stomach to handle them, he recommends treating investments there like private equity—put the money in and come back in five years to collect. But don’t be surprised if there are a lot of ups and downs in the intervening years. Novogatz agreed. “If you need any liquidity, don’t even go close [to frontier markets],” he says.

Overall, there’s inherently high volatility within the emerging markets, says Jim Donald, managing director of Lazard Asset Management. Although the space has recently posted some gains after two rough years, fundamental factors are in flux. This is particularly true in China, where new leadership and the potential for reform make it a country to watch in coming years. China has a long laundry list of reforms they’re trying to enact, says UBS Wealth Management’s Jorge Mariscal. But if even 30 percent of these reforms go the right way, it could really downgrade the risk in China and make Chinese assets more attractive.

In the short term, Mexico has emerged as a good opportunity, says Sara Zervos, head of OppenheimerFunds’ global debt team. Energy reforms there are likely going to do well, she says. The panel also highlighted Indonesia, Korea and Turkey as other good bets.

Novogatz predicts there is going to be a “global equity meltup” in the next ten weeks. “You can buy anything,” he says. And the so-called “crappy” countries will outperform, as they catch up from the taper scare, he adds. 

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Casting a gimlet-eye on asset management issues.

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