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FRONTIER MARKETS
THE BIG PICTURE
The 2020 ABFM survey suggests that multi-market service
providers are having growing success in establishing
regional service models, though client appreciation
of service quality lags that in busier markets.
A
s we go to press, the outlook for
the global economy is somewhat
grim. So let’s start with a small
dose of optimism. In a recent client letter
addressing the impact of COVID-19,
Mobius Capital Partners, the emerging
and frontier market investment boutique
founded by industry veteran Mark Mobi-
us, observed that, “From a macroeconom-
ic perspective, we know that a recovery
follows every crisis. We have witnessed
the economic impact of previous pan-
demics, and it is always temporary…It is
unavoidable that we will see a fallout and
likely a recession ahead. Nevertheless, we
can see the first signs of normalisation
taking place in China. A survey by Made-
in-China.com, one of the main platforms
connecting Chinese suppliers and global
buyers, found that by late February, 80%
of manufacturing firms had resumed
operations. Of course, this may change
again, depending on the ongoing con-
tainment of the virus.” Granted, China is
hardly a frontier economy, but as an im-
porter of raw materials, its manufacturing
sector is the engine for a lot of commodi-
ty-producing frontier markets.
Mark Mobius is probably not typical of
the average institutional investor, since he
Methodology
The universe of markets in the GC Agent Banks in Frontier Markets (ABFM) survey
draws primarily on the MSCI and S&P Frontier Markets lists. Not all of these markets
are, however, represented in the accompanying tables. Such representation depends
on the number of responses received for each.
For this year’s survey, respondents were asked to complete a pared-down version
of the 2019 questionnaire, with the ability both to skip sections not deemed relevant
and to give an overall assessment for each category rather than responding to the
more granular questions in each category. The responses were elicited through the
use of a sliding scale from ‘strongly disagree” to “strongly agree”. Each response
registered a number between 0 and 20. Aggregated scores were converted to GC’s
traditional seven-point scale for publication (where 1=unacceptable and 7=excellent).
One point to note, however, is that the weighting criteria have been adjusted to give
greater voice to the views of the largest respondents. As such firms tend to be more
exacting in their demands than their smaller peers, the average ratings may appear
lower than in previous years.
The response pool was drawn from two sources. Those respondents who com-
pleted the survey last year were invited to do so again, while service providers in
the markets concerned were invited either to submit client lists for invitation or to
approach those clients themselves. Any responses submitted by institutions that
were not clients of the rated provider in the previous year were removed.
70
Global Custodian
Spring 2020
has long had a reputation for homing in
on individual companies that he regards
as having potential and which he or his
team can engage with directly, however
hard they may be to get to. For most in-
vestors though, frontier markets are rare-
ly considered individually when it comes
to allocations; rather they are grouped by
region or sector for investment purposes.
As a result, the template for servicing
such assets may differ from markets
where activity is more intense, both in
terms of volume and frequency. There
is some evidence, for example, that in
some markets, the links that ICSDs have
established, either direct with a local de-
pository or through the use of an account
operator, are sufficient for most needs. In
others, the choice between local banks
offering custody services or some kind
of regional offering from a multimarket
provider remains the go-to solution.
The response pools for GC surveys are
to a large extent driven by the efforts of
these service providers to encourage their
clients to engage with the questionnaire.
Presumably, for the purposes of compar
polling, they would aim to map their
participating clients to their overall client
landscape in terms of size, location and
type of client. That is at least GC’s work-
ing assumption, though we are not really
in a position to verify it. Nevertheless,
with that caveat in mind, it appears that
in 2020 – with one or two notable excep-
tions – users of regional service offerings
account for the majority of responses,
whether or not they have a hub or direct
relationship with the individual markets
in the region concerned. More so than in
previous years, it seems the attractions
of a regional approach are coming to the
fore.
What follows is an analysis by region
that reflects these trends. At the back of
the survey, readers will still find provider
ratings for individual markets, where
sufficient responses justify.