Opal Group European Family Office & Private Wealth conference, Geneva 2013

by Richard Shaw on June 10, 2013

Geneva (1)Last week I attended the Opal Group’s annual European Family Office & Private Wealth conference in Geneva and was one of the panellists on a panel discussion about the world’s emerging markets. The conference was very well attended and a huge success, I thought. There was an incredible spirit amongst all participants and the Opal Group really did a fantastic job in arranging this event.

My panel discussion was led by Karim Shariff of Majlis Investment Management in Dubai and my fellow panellists included Robert Strang of Investigative Management Group in New York and Emilio Soares of the Naopim Family Office in Rio de Janeiro. A number of good arguments were presented for investing in the emerging markets and a recurring theme during the panel discussion was the need to know and feel comfortable with the operators who would be managing the businesses you invest in and your partners in these far-away lands.

At one point during the discussion Karim asked all the panellists which single emerging market they would feel least comfortable investing in and we all responded ‘China’! From my point of view, China is a command economy and, because of this, it has been very easy for their government to grow their economy very aggressively but, without economic fundamentals in place to support their rapid expansion, I’m doubtful this growth is sustainable. You may argue that their expansion has been export driven and, therefore, there are economic fundamentals to support their growth. That is true but their economic expansion has been accompanied by upward price pressure on resources, while manufacturing methods have become more and more efficient in the developed world, leaving China’s manufacturing proposition less and less compelling. China will need to transform itself from a work horse into a consumer if it is to continue expanding and I haven’t read any research that would convince me that it’ll be able to do so and continue to generate the sort of GDP growth that it has in the past.

Karim also asked us which single economy we would invest in if we could only invest in one. My answer was Nigeria. Apart from Citi’s research, which points to it being the fastest growing economy in the next 40 years, there is so much to convince me that the Nigerian economy is about to enter a long period of sustained growth. I refer here to factors such as its large, and very young, population, its natural resources, including oil, minerals and agricultural resources, and the fact that oil proceeds, so much of which were externalised in the past, are being put to work in Nigeria now, infrastructural issues are being addressed and corruption is slowly being stamped out. Governance is slowly being implemented across government institutions and the private sector alike.

A point that I made as part of my opening remarks is that the spread between yields on emerging market assets and developed world assets is so wide that you could drive a bus through it and that they must start to converge at some time. As an example, Fresenius, a distressed German pharmaceutical manufacturer, recently raised EUR 500 million through a bond issue yielding 2.875% while the Nigerian government 20 year Naira denominated bond yields 12.799%. Distressed companies fail on a regular basis while the only instance of a government defaulting on its own debt issued in its local currency was the United States after the civil war when it refused to honour bonds that the Southern States had issued to fund the war!

About Richard Shaw :

Richard Shaw has been employed by, and consulted to a long list of organisations over the past 20 years, including Commerzbank, HSBC, BGL Limited, Investec Bank, Ecobank, Coronation Capital and the Re-Action Group. His assignments have ranged from strategy research and development and organisational restructuring assignments to investment appraisals, business plan reviews, business transformation and business process re-engineering assignments.

Richard has been with Bearing Consulting since 2007 and is currently the Partner responsible for the firms business in the UK and across Africa. in his capacity as a Partner and Consultant, he focuses on capital raising, strategy research and development assignments across the African continent.

Richard was born in Germany and spent his childhood in a number of European and African countries, including Germany, Italy, Lebanon, Malawi and the United Kingdom. He completed his education in the United Kingdom with a MBA in Finance and is currently busy with a Doctorate in Industrial Economics and Business Strategy at Cranfield University.

{ 2 comments… read them below or add one }

Paddy Kamatkar August 27, 2013 at 00:07

Very interesting observation in the concluding paragraph! Speaks volumes of the disparity between the privileged world and non-privileged world. Interestingly, on the eve of 50th anniversary of the historic March, the National Public Radio of America has been airing talks changes in the social conditions of blacks in the US since 1963 – and a striking comment came today – something like, “the blacks without any criminal record were less likely to get a job offer or a call back than whites even with a criminal record!”

Aside from and despite such perpetually blocking challenges, emerging economies will grow, albeit not at the pace academicians and economists predict, but with a pace that global social and political factors determine – I guess, something of a fallacy of the economics.

Why will money laden China not own or control strategic assets, in say Nigeria, to make up for the lack of domestic sustaining support? It already has several key ownerships and partnerships in Africa. I see a second wave of colonization of a new kind! Thoughts, comments?

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