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High Yield Opportunities: A Growth Story in Frontier Markets

High Yield Opportunities: A Growth Story in Frontier Markets . …Returns are to beat inflation. Wealth Management is about “Capital Preservation”…. …Returns are to beat inflation. Wealth Management is about “Capital Preservation”…. Bank of New York Mellon New Frontier Market Index

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High Yield Opportunities: A Growth Story in Frontier Markets

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  1. High Yield Opportunities: A Growth Story in Frontier Markets

  2. …Returns are to beat inflation Wealth Management is about “Capital Preservation”…

  3. …Returns are to beat inflation Wealth Management is about “Capital Preservation”…

  4. Bank of New York Mellon New Frontier Market Index • FTSE Frontier 50 Index • Two Indexed published based on the most liquid stocks traded in ADR or GDR forms on NYSE and LSE (i.e. relatively open economies) • List of Countries: Sample Data Argentina Bahrain Bangladesh Botswana Bulgaria Chile Colombia Cote d'Ivoire Croatia Czech Republic Egypt Estonia Georgia Jordan Kenya Lebanon Lithuania Macedonia Mauritius Nigeria Oman Pakistan Peru Poland Qatar Romania Slovakia Slovenia Sri Lanka Tunisia Ukraine Vietnam Data Sources: Central Bureau of Statistics of Israel, Federal Housing Finance Agency, Central Banks, World Bank, Bloomberg

  5. Geographical Coverage

  6. Frontier Markets top larger emerging countries by ease of doing business and investor protection; • Foreign Direct Investments (FDIs) are high contributing to faster GDP growth; Frontier Markets more open & liberal than before World Bank Ease of Doing Business (2010) 5 Year Average FDIs as % of GDP (as of 2009)

  7. Common characteristics of all these counties • Eagerness to grow – fiscal & monetary policies are liberal and support growth; • High inflation is not “a taboo”… It is normal to observe double digit inflation; • State realizes importance of foreign capital [and expertise] inflow to develop economy – usual side effect is currency not depreciating in line with inflation; • Governments understand social & economic consequences of bank defaults (no single loss of deposits in the last decade) …More Unpredictable than Switzerland But… 10 Year Average Growth & Inflation (CAGR) 10 Year Average Growth & Inflation (CAGR) 5.8% 6.0%

  8. How to identify the right opportunities? Factor Influencing Yield on Deposits • Inflation • Domestic Credit (DC) Level - markets with smaller Loan-to-GDP ratio have higher inflation/better rates; • Market Capitalization (MC) of Listed Companies - again, markets with less capitalization demonstrate better yields; • Total Bank Assets (BA) – Higher Assets to GDP lower is inflation; • Balance of Goods & Services (BOGS) – Net importers tend to have higher inflation. …But not all these countries are equally good Inflation Correlation with Factors

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