• Home
  • About Us
  • Contact
  • Your Account
  • Subscribe
No Result
View All Result
Wednesday, February 1, 2023
Alternatives Watch
  • Hedge Funds
    • Manager News
    • Mandates
    • Service Provider News
    • CTAs/Managed Futures
  • Private Equity
    • Manager News
    • Mandates
    • Service Provider News
  • Private Credit
    • Manager News
    • Mandates
    • Service Provider News
  • RE/Infrastructure
    • Manager News
    • Mandates
    • Service Provider News
  • Investor News
    • Endowments and Foundations
    • ESG
    • Pensions
    • Platforms
    • Consultants
  • Research
    • Investor Scorecard
    • Manager Scorecard
  • Subscribe
  • Log In
  • Hedge Funds
    • Manager News
    • Mandates
    • Service Provider News
    • CTAs/Managed Futures
  • Private Equity
    • Manager News
    • Mandates
    • Service Provider News
  • Private Credit
    • Manager News
    • Mandates
    • Service Provider News
  • RE/Infrastructure
    • Manager News
    • Mandates
    • Service Provider News
  • Investor News
    • Endowments and Foundations
    • ESG
    • Pensions
    • Platforms
    • Consultants
  • Research
    • Investor Scorecard
    • Manager Scorecard
  • Subscribe
  • Log In
No Result
View All Result
Alternatives Watch
No Result
View All Result

Digitization offers alpha opportunities in frontier markets

Sandeep SrinivasAli HussainbySandeep SrinivasandAli Hussain
September 8, 2022
in Features, Hedge Funds, Manager News
Digitization offers alpha opportunities in frontier markets

Nur-Sultan, Kazakhstan's capital city by antonpetrus/Envato Elements

ShareTweetShareSendSend

Frontier markets offer much better opportunities than just investing in old economy consumption themes. We believe that digital literacy, improving infrastructure and supportive government programs have ushered a new era for entrepreneurs who can adapt and customize business models to cater to local needs.     

The expansion of digitization presents opportunities entirely unique to frontier markets. The opportunities are grouped into three main themes: growing 4G availability, increasing e-commerce penetration and the adaption of real economy companies to digital enabled players.   

4G availability    

The emergence of 4G availability dates back little more than five years in Vietnam and Pakistan. This delayed start means that frontier markets trail developed markets in penetration levels for fast growing apps in a number of verticals such as ride hailing, and takeaway meal ordering. The rapid expansion of smartphone ownership and 4G coverage are also poised to enable a boom in e-commerce.    

E-commerce penetration   

Over the past 15 years digitalization of services has developed significantly in frontier markets. These companies are now reaching a sweet spot of scale where they can spend more on innovation and grow faster going forward. After 13 years of operations, M-pesa (the first and most successful mobile payment service in Africa) supports over 50m customers and processes billions of transactions. But this is just the beginning as only 25% of M-pesa customers have a smartphone and this is growing at some 10% every year.    

Elsewhere, Kaspi in Kazakhstan introduced digital retail banking and currently services almost half of the country’s population. In Bangladesh, Bkash brought the unbanked into the formal economy and now services around a fifth of the country’s population. Compared to the 35% retail penetration rate of China, e-commerce penetration rates across frontier markets like Vietnam and the Philippines is 4-5% while Sub-Saharan Arica, Bangladesh and Pakistan are below 2%.   

In a recent study, Facebook and Bain & Co estimated that the average gross merchandise value (GMV) per digital customer in Southeast Asia will increase five-fold by 2026 compared to 2019. Despite this exponential growth, e-commerce penetration in countries like Vietnam will only reach 10% by 2026, implying substantial growth potential beyond the next five years.   

Increased digital usage, whether via e-commerce or the use of digital payment platforms, was a global trend during the pandemic. The key difference for Frontier Markets was the relatively lower adoption levels pre-pandemic, providing the headroom to grow since.    

Growth alongside technological adoption in the real (old) economy is creating a new generation of nimble, adaptable firms that are using digital transformation to reinvent these themes in frontier markets.   

Real economy company adaption

One success story is in Kazakhstan — a country with just over 18.5 million population, with low consumer banking penetration of just c.6.7% of the country’s GDP versus 23.7% in China; one main impediment was to profitably access small-micro retail segment of the population. Kaspi which started as a conventional brick-and-mortar bank addressed this gap by completely transforming into a digital retail outfit. The management recognized that Kazakhstan was far more advanced in mobile penetration (currently stands over 130%) and decided to access customers digitally, which was cost efficient and enabled Kaspi to reach out to a part of the population that had limited access to banking. Over the past 13 years, Kaspi, which reinvented itself as a digital retail bank, developed a marketplace (like amazon) and a payment platform (like Square + paypal + Wechat) — currently Kaspi generates almost 54% of earnings from digital banking, and 46% from marketplace and payment platform. The management is on track to generate majority of earnings from marketplace and payment platform over the next 5 years.   

Across our investible universe many businesses are adopting technology at a rapid pace. In the Philippines, Robinson Retail is using technology to connect traditional retailers. The company invested in Growsari, a tech enabled B2B platform that currently connects over 50,000 mom-and-pop grocery stores across 100 cities. The company is building up an ecosystem by integrating various services to merchants such as providing working capital loans, offering an e-commerce platform, electronic bill payments, to name a few. Growsari is allowing Robinson to capture a bigger share of the overall retail pie, which was not possible before given the barriers.    

Mitra, an Indonesian multi-format retailer is a play on rising modern retail penetration in Indonesia. Online sales have grown 12x increase in absolute sales since 2018 as the company has invested in proprietary e-commerce platforms, with exclusivity clauses from Inditex allowing them product priority vs. third party platforms.   

Not only do frontier markets offer terrific opportunities tied to digitization, it is also the case that they are under-researched compared with emerging and developed markets – there are between seven and 11 times more analysts covering a top 10 developed or emerging market stock versus a frontier markets one. The scale of this coverage deficit is even more pronounced in the frontier markets technology space where local, single country focus sell-side research (the bulk of coverage) is ill-equipped to appreciate the hidden value drivers of these new economy verticals given the short time frame that these opportunities have existed.     

ShareTweetShareSendSend
Previous Post

Former Investcorp exec Vamvakas joins renewables specialist Spearmint

Next Post

BayPine raises over $2bn in debut fund

Related Posts

MFA welcomes UK regulator's recognition of short selling in ESG
ESG

MFA welcomes UK regulator’s recognition of short selling in ESG

Titan’s Morgan reveals how she is keeping up with crypto
CTAs/Managed Futures

Titan’s Morgan reveals how she is keeping up with crypto

NY pension adds $1.2bn across PE, credit, HF and real estate programs
Pensions

NY pension adds $1.2bn across PE, credit, HF and real estate programs

AI hedge fund Castle Ridge builds success with multi-model system
Hedge Funds

AI hedge fund Castle Ridge builds success with multi-model system

Long/short hedge funds struggle as redemptions surge
Hedge Funds

Long/short hedge funds struggle as redemptions surge

Next Post
BayPine raises over $2bn in debut fund

BayPine raises over $2bn in debut fund

Log In/Out

Lost your password?

Search the AW Archives

No Result
View All Result

Recent News

Patient Square closes inaugural fund at $3.9bn

Patient Square closes inaugural fund at $3.9bn

MFA welcomes UK regulator's recognition of short selling in ESG

MFA welcomes UK regulator’s recognition of short selling in ESG

Titan’s Morgan reveals how she is keeping up with crypto

Titan’s Morgan reveals how she is keeping up with crypto

CPP invests in India's largest logistics RE markets

CPP invests in India’s largest logistics RE markets

Be an Alts Insider

Sign up for your FREE daily alts news briefing

Subscribe

Subscribe to AW
Alternatives Watch

© 2019-2022, All Rights Reserved  |  BMV Digital

Navigate Site

  • Hedge Funds
  • Private Equity
  • Private Credit
  • RE/Infrastructure
  • Investor News
  • Research
  • Subscribe
  • Log In

Follow Us

No Result
View All Result
  • Hedge Funds
    • Manager News
    • Mandates
    • Service Provider News
    • CTAs/Managed Futures
  • Private Equity
    • Manager News
    • Mandates
    • Service Provider News
  • Private Credit
    • Manager News
    • Mandates
    • Service Provider News
  • RE/Infrastructure
    • Manager News
    • Mandates
    • Service Provider News
  • Investor News
    • Endowments and Foundations
    • ESG
    • Pensions
    • Platforms
    • Consultants
  • Research
    • Investor Scorecard
    • Manager Scorecard
  • Subscribe
  • Log In

© 2019-2022, All Rights Reserved  |  BMV Digital

Be an alts insider

Start your days in the know with our free newsletter

No, I don't want to be an alts insider

Thank

You!

Follow us
on LinkedIn

Lost your password?

Cookie Consent
We do not use cookies on our website other than those that are strictly necessary for the website to function. By clicking “Accept”, you consent to the use of all six strictly necessary cookies.
Do not sell my personal information.
Cookie Settings Accept
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Save & Accept
Powered by CookieYes Logo