The conclusions of the book are the result of a poll, to which the top performing fund managers of the last ten years participated, together with whom the author travelled to the ten countries selected before submitting the investors’ favorites to a vote. Romania is considered a frontier market in terms of capital market, just like the African countries or Saudi Arabia.
“In all of the frontier markets the big story for investors is the consumer, the rising income. In Romania the story for investors is the convergence of incomes coming up to the level of the rest of the Europe, that means for investors more consumer spending,” Gavin Serkin told ZF in an interview. He was in Bucharest for a few days in mid May to present the conclusions of the book in front of the clients of a private bank.
“Investors want diversification, a stock exchange that is more than banks and energy – the thing that struck me in Romania.”
While Romania ranks seventh among the ten most promising frontier markets, Nigeria, Africa’s largest country ranks first, according to Serkin’s book. In the eyes of the investors, Nigeria, which the Bloomberg editor describes as one of the most violent countries he has ever visited, has the highest growth potential in the next five to ten years.
Most frontier markets are poor or affected by conflicts. Some markets, however, such as Saudi Arabia and Vietnam, are rated as frontier markets because of the laws restricting investment. Others, like Romania, are there because of the size of their capital markets, which makes it very difficult for investors to invest sizeable amounts of money, Serkin says.
“An investor can go to Nigeria or Kenya and invest $10 million a day and invest them quite easily. In Romania, it is quite difficult to do that,” he says, adding that this is why investors do not see Romania as another Eastern European market but as a market more suitable for niche portfolios.
Serkin himself admits in his book that “ Bucharest doesn’t feel frontier”, meaning that near the Henri Coanda Airport, everyone arriving in the city finds big corporation names, wide roads and expensive cars like in any Western country.
Why is Romania seventh in the ranking, after countries like Nigeria and Argentina, which have made headlines with their armed conflicts or with two defaults in the past thirteen years?
“Romania is number seven because there are other strong peers ahead of it. Let’s take Nigeria, for instance: population is around 180 million people, but by 2050, it will overtake America and will become the third largest nation on the planet. So, the top nations will be India, China, Nigeria and then America. With a new government, which was elected on a platform of fighting corruption, Nigeria has a clean sheet to turn an expansive population into a productive advantage. Moreover, despite the poverty, the potential of having an increase in domestic consumption is significant due to the fact that Nigeria is one of the fastest growing economies in the world.”
The author of the “Frontier. Exploring the top ten emerging markets of tomorrow” book says that investors on frontier markets are attracted by those economies that have the potential for a consumer spending increase generated by the rise in incomes.
For investors to get into Romania’s story, Serkin says, the Bucharest Stock Exchange needs to attract private listings.
“Encourage companies to be transparent, open themselves, offer them incentives to do that and the number of private listings will grow. The upgrade to emerging market is good to have as a goal, it pushes everyone in the same direction. The stock exchange as a company went through a lot of volatility in the past: it had four CEOs in the past five years.”
While doing research for his book, Gavin Serkin came to Romania at the end of 2013, shortly after the government had sold 15% in Romgaz (SNG.RO) on the stock market for half a billion dollars. The investor he traveled with in Romania was Andrea Szalkai from Raiffeisen Capital Management. He traveled with Kevin Daly from Aberdeen Asset Management in Nigeria and with Mark Mobius from Templeton Asset Management in Vietnam.
“For the book, I came at the end of 2013, during the period of the ending of the financial crisis, people were not that optimistic, having anxiety about how rich British and Germans were buying farmland here. I was struck by how efficient things work in Romania, as compared to other frontier countries, by the infrastructure that is better than in other countries considered frontier. The problems, which were still a big issue, were corruption and government circles being involved in the state companies, Fondul Proprietatea fight for corporate governance in the state owned companies.”
This was not his first time in Romania. He first came as a child during the Ceausescu era, when he went together with his parents to a holiday resort near Constanta Harbor. He remembers from back then that someone wanted to buy the shirt of his father, as well as the Comturist stores where foreign tourists could purchase things.
A past that Romania has left behind; the aspirations of the Bucharest Stock Exchange, populated mainly by once state-owned companies, are now to promote to the league of emerging markets and join the other countries in region, such as Poland, Czech Republic and Hungary.
(English version by Loredana Fratila-Cristescu)