Frontier Market Smartphone Bonds? Buyer Beware, Grant Says

It may be a a sign of a peak in enthusiasm for risky assets when Tajikistan enters the international debt market for the first time, and Kenya offers $29 smartphone bond purchases to local investors.

The headlines are courtesy of the authors of Grant’s Interest Rate Observer, the pithy newsletter peppered with sarcasm, which added the following in its Aug. 30 Almost Daily Grant’s rate roundup:

“… Away from the old continent and the loving embrace of Mario Draghi, B3-rated Tajikistan (which borders Afghanistan to the south) is set to issue 10-year bonds (investor meetings are to begin Aug. 31), in its first ever foray into the international debt market. Successful recent offerings from other frontier markets (a euphemism which replaced the less-sensitive yet arguably more descriptive “waste places”) including Iraq and Belarus have raised hopes for the mountainous central-Asian nation, which has a GDP per capita of just $804 according to estimates from the World Bank. …

The final stop on today’s world tour of borrowing and lending is the east African Republic of Kenya, which earlier this summer launched M-Akiba bonds, sporting a coupon of 10% for a three-year duration. The catch? It’s the world’s first mobile sovereign bond sold only via smartphones. … The Economist explains: ‘The bond is marketed at small investors, who … can register on their phone in a few minutes and invest as little as 3,000 shillings ($29), far less than the 50,000 shillings needed to buy other treasury bonds. … Success has thus far eluded this particular experiment in technology (and debt), with The Standard – Kenya reporting that in the past six weeks, the M-Akiba has commitments for 170 million shillings, well below the 1 billion shillings the Kenyan government had targeted.”

The American Beacon Global Evolution Frontier Markets Income Fund (AGUAX) has produced a total return of 9.4% this year. The fund claims to be the “first and only open-end mutual fund in the U.S. to invest primarily in debt instruments of frontier market issuers. Top holdings include bonds in the Dominican Republic, Mongolia, Ivory Coast and Mozambique. The iShares MSCI Frontier 100 exchange-traded fund (FM), which is invested in equities, is up 23% this year, in line with the 24% rise in the Vanguard FTSE Emerging Markest ETF (VWO).

See our free posts for more on frontier markets:

Africa Roundup: What’s Next For S. Africa, Kenya & Mozambique?

Latin America: Why It’s Time To Overweight Argentina

YPF v Ecopetrol: 2 Latin America Energy CEOs Resign

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