More Signs Of Froth

by: Cam Hui, CFA

As a follow-up to yesterday's post (see Is the credit market cruisin' for a bruisin'?) where I detailed signs of froth in the credit market, I offer the following anecdotes of rising risk appetite.

Everyone's bullish
Firstly, Joe Wiesenthal at Business Insider wrote that Nomura strategist George Goncalves found that when he went around the world on a marketing trip, virtually all institutional accounts were bullish:

Uniformly, he found that the view was this: The Fed had its hand on the till, and there was almost no way for risk assets to go down in light of the Fed stimulus. Virtually everyone was bullish. Even the bond managers aren't worried about a great-rotation inspired selloff (they're not really that worried about a shift from bonds to equities) though it is in the back of their minds.

The next frontier is...
In addition, I received the following unsolicited email last week, which I reproduced with the names blanked out:

Many analysts have called this week's Asiacell IPO the first test of the Iraqi stock market. Would foreign investors flock to a region that has been viewed as volatile with no stability?

I wanted to see if you would be interested in speaking with the portfolio manager for one of the largest equity funds in Iraq, _______. He says the Iraqi market is primed to become the best performing international investment and it's no longer just about oil, as Asiacell proved on Sunday.

_______ says infrastructure, telecommunications, transportation are all positioned for growth. He says the big picture of Iraq has changed dramatically since the US forces and media pulled out of the country.

_______ understands the Iraqi markets better than most traders, entrepreneurs and investors. He has visited Iraq many times, meeting with the country's biggest business leaders. He brings an unfiltered perspective on how the Iraqi market is evolving, and has said the market is ripe with potential.

If you're interested in speaking with _______, he can discuss:

* Why telecommunications in Iraq is igniting a productivity surge similar to what the US saw in the 1990s.
* What the Asiacell IPO means to the international market.
* Why many American investors may not be seeing the big investment picture in Iraq.
* Why many companies in Iraq have PE ratios below 4.
* Why _______ believes the Iraqi market is poised to become one of the best performing markets over the next decade.

Hmm, the Iraqi stock market as the next *ahem* frontier. How special!

Then I saw this commentary last Friday from David Rosenberg:

Yesterday, I mentioned several parts of Latin America as being hidden investment gems for our international strategy. Another sleeper out there is segments of Africa where private equity is finding a home and even more liquid capital inflows into equities are rising to levels not seen in two years - to little fanfare, the frontier markets are up 8% so far this year, outpacing both the developed world and the traditional emerging market universe. See Investors Scramble for Africaon page 19 of the FT.

Is it well known that the Nigerian stock market is up 63% over the past year or that Kenya is up 46% (in USD terms)? Does anyone even know where these countries are on a map? Ghana has been a real hotspot for money inflows and its market has rallied 18%. Of course, liquidity is low in these markets and volatility high, but by all accounts, forward and trailing P/E ratios are among the lowest in the world and the FT article cites a nice 6% dividend yield to boost.

I could write about how 16 year-old Desperate Housewives actor Rachel Fox became a minor celebrity for her day trading activities or the WSJ article about how individual investors are funding currency trading with credit cards as examples of froth, but that would be too easy. But when the perennially bearish David Rosenberg starts to tout frontier markets like Nigeria, Kenya and Ghana, be afraid, be very, very afraid.

Disclaimer: Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.