You may have heard that Mint is no longer just a peppermint sweet; it is now also an investment acronym which in the next decade or two could prove extremely profitable for investors.
The concept, which groups the countries of Mexico, Indonesia, Nigeria and Turkey, has been popularised recently by respected economist Jim O’Neill, the man who also coined the BRIC term in 2001, identifying Brazil, Russia, India and China as the next global economic powerhouses.
Let’s look at each country’s Investment credentials, and how investors could profit.
A common feature with all of these countries is that they all boast rapidly growing young populations, so in theory should benefit from the rapid rise in domestic consumption. Mexico is no exception as the average age is 27, which compares favourably to developed economies, such as the UK, were the average age is 40.
The geographical location of Mexico is one reason why economists are excited about its long term growth potential. Mexico has close links to the US and fast growing Latin American countries, most notably Brazil. Over the past five years Mexico has significantly increased its exports into the US, which in turn has boosted growth, currently running at 3.5pc a year.
But the biggest reason why some investors have been more positive and have started investing more money into the region is because of the new economic reforms that have been introduced. The Mexican Government has dramatically lowered its gas and electricity prices, which is expected to increase foreign investment into the country.
Tom Smith, who runs the Neptune Latin American fund, said the reforms could prove profitable for investors.
“The energy sector in Mexico has huge potential but is being strangled by underinvestment. This should change as the government plans to open the sector to private investment for the first time in seventy-five years.”
Indonesia has a large and crucially from an economic standpoint young population, with the average age of the 250 million populous just 25.
Experts argue the young population is earning more money each year, in turn leading to stronger levels of consumer spending on goods.
Anthony Eaton, fund manager of the JM Finn Global Opportunities fund, is a big fan and has invested in several shares in the country. He explained the shares he owns are direct plays on consumer spending habits.
“Indonesia consumers are increasingly having more and more disposable incomes. Young adults in Indonesia are no longer commuting on bicyles, instead they are now buying cars.
“I have shares in Jasa Marga, which is the largest toll road operator in the country. As more and more people buy cars – profits for the company will increase significantly.”
For years Nigeria, along with Kenya, has been touted as the best country to profit from rapidly developing African economies.
There are two main reasons why Nigeria has been attracting attention.
Firstly its economy is running an account surplus, or in other words is not heavily indebted like the majority of its neighbours. In theory this gives Nigeria’s government scope to build infrastructure, which will in turn create more jobs and boost consumer spending.
Another reason why the investment community is so excited is because Nigeria’s business market is dominated by a small number of sellers. Mr Eaton said from an investor point of view this is extremely attractive.
“As competition is less intense in Nigeria compared to developed economies it is much easier to identify which stocks are likely to continuing being successful in the future,” said Mr Eaton.
“For instance I own shares in UAC, which owns a chain of a restaurants and hotels across the country. It is the dominant market player in both sectors.
If Turkey can sort out its political problems the country could one day become one of the fastest growing European economies.
Nearly half of its 80 million population is under the age of 25, while Turkey is well positioned geographically – between Europe and Asia.
Henrietta Seligman, an analyst at Somerset Capital Management, explains why she is positive on Turkey’s prospects.
“Being positioned between Europe and Asia and the potential to act as a gateway to the Middle East offers a compelling background to investing in Turkey. The country offers a deeper stock market with more well-managed companies than many of its eastern European peers,” said Ms Seligman.
“However, the ability to unlock Turkey’s potential growth is subject to several obstacles, some of which are acting as a barrier to growth currently: namely the large current account deficit and more recently the threat to political stability, which has put overseas investors off investing in the country.”
But the risks are high…
Whichever frontier market you back, bear in mind the added risks of investing in such nascent economies – it’s not for the faint hearted.
Some experts argue each of the MINTs are already looking pricy. Shares in the Mexican and Indonesian stock markets hit a record high last year, which has put some investors off, including Tom Becket, a fund manager at Psigma Investment Management,
“Given how well Mexico and Indonesia have performed relative to many other stock markets over the last few years, I would be quite wary of them,” said Mr Becket.
“On a short term valuation perspective it is not easy to claim that such markets offer a scintillating entry point for investors and they trade at a premium to many other markets, particularly other emerging markets. It is far more important for investors to think about starting valuation rather than economic potential.”
Political risks were also cited by many experts as another reason to be wary about putting your money into such immature economies.
Another danger to be aware of is currency risk. Both emerging and frontier market economies are susceptible to wild currency swings. To an extent the value of your investments in a frontier market is at the mercy of the exchange rate – if Mexico’s currency falls 10% – the share prices gains you have made will be reduced by 10%.
How can I profit from the Mints?
The experts see 10 years as a minimum. This is partly because share price fluctuations in emerging markets are usually more pronounced than in Britain or America, but also because time is needed to see the benefits of an expanding economy filter through to share prices.
The key to healthy returns is patience: if 10 years is a minimum for emerging market investing, think even longer. Trying to second-guess these markets is a risky business.
A useful tactic is setting up a regular investment plan. This “drip-feeding” discourages you from trying to second-guess rises and falls. It also limits the risk of losing money.
The majority of investment funds run by city stockpickers do not have much money in these economies, but there are some specialist funds that invest in Mints.
Your best bet though is to buy a global fund, which has a portion of its money in the MINTs, but also has the majority in developed economies, such as the UK or US. This will give you smoother returns over the long run, while also giving you exposure to these up and coming countries.
Alternatively another option is a cheaper “tracker” fund that replicates the average share performance in these regions. At present there is no such thing as a Mints index fund or exchanged traded fund, so alternatively your best option in to back an index fund that invests in frontier markets, which will include some of the MINT nations.
If you would like to discuss your investment or pension strategy with one of our advisers, you can contact us through the website, or call 0115 9061 222.