Looks like Barrons has discovered Bangladesh…

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Bangladesh RMG Factory

Barrons’ Devendra Joshi seems to have discovered Bangladesh.  Cue rueful smiles from anyone who’s tried to sell Bangladesh and been rebuffed by people who would  have rather invested in (I shit you not):  Kurdish oil companies, Ukrainian debt, Greek debt…

A lot of the stuff he says are blindingly obvious to regular denizens of frontier markets.  Nuggets like,

Remittances provide a source of income for many families…

…with a gross national income per capita of USD1,046, Bangladesh broke into its “lower middle-income” category in July 2015. …

But I have more fundamental problems with this report:

  1. He is focusing on equity plays based on the undeniably good macro story.
    1. I have found it well nigh impossible to properly correlate the two as an investor.  I think there probably still are quotes lying around from Soros rueing how difficult that play really is.
    2. It is actually doubly difficult in Bangladesh because the equity market doesn’t reflect the powerhouses of the economy.  The really well-run companies are very closely held public or completely private.
    3. Oh, and let’s not forget that the banks, some of the largest bloc holders of equity, are being forced to offload their equity holdings per Basle rules.
  2. He is talking up the consumer story.  Everything consumer I have found in Bangladesh is focused on the affluent or super-affluent consumer in Bangladesh.  The few who do cater to middle class consumers (where the real long money is) are
    1. private like Square Food and Beverage.  Great products and consumer brand image.  You could play through the “parent” Square Pharmaceuticals but that is a market darling and they don’t need outside money.
    2. bloody dangerous like Pran Foods.  Hugely profitable, a darling of foreign investors like the IFC but a disaster waiting to happen, considering huge debts and a tendency to play fast & loose with product quality
  3. He does like the banks.  That’s not such a bad idea, only (as he rightly points out) they have looming NPL bombs.  However, the good banks (and the bad) are running up against Tier I & II stoppers and quiet a few of them have asked us to raise funds.  You’d be surprised how may people are interested in that kind of paper….
  4. He doesn’t mention the RMG sector much.  Ready Made Garments (factory disasters notwithstanding) manufacturers are the country’s growth engine.  They are almost all privately held and, unless you want to buy Square Textiles, the public ones are not worth the time.  Just one, Mohammadi Group run by Rubana Huq, has revenues in the USD 200 million range and is completely private.

Of course, if you really want to make money in Bangladesh, you have to do it the “old fashioned way:” by investing in proper operating companies that make real products.  Call me if you care…

Background: What is the Intrinsic Value of a Financier?

The question actually came to me last weekend at a party when an Englishman I was talking to said “Good Riddance” on hearing that BlueCrest had moved headquarters from London to Geneva.  I actually partly agree — probably for the first & last time — with Michael Farmer

“If one is a citizen and your country’s having a tough time, you pay your taxes and that’s it – although rather reluctantly if they are not spending it wisely,” Mr Farmer told the Financial Times. Continue reading “Background: What is the Intrinsic Value of a Financier?”

Trade Notes: Is it Worth the Trouble Investing in GB Debt?

I first looked into Grameen Bank (GB) almost 3 years ago.  A Deutsche Bank research report in 2007 got us interested in potential MFI (Micro Finance Institution) loan portfolio investments. Continue reading “Trade Notes: Is it Worth the Trouble Investing in GB Debt?”

Background: Grameen Bank’s Model Under a Foreseen Threat

Monte Dei Paschi Di Siena

Good old-fashioned partnership merchant banks lending out proprietary money is where banking started (hence the picture of Monte Dei Paschi Di Siena, the oldest surviving bank):  a partnership with long money to lend, taking the risk and the profits of new ventures from the next crop to the next shipload of whatever coming into port.

Modern banks are built around the concept of borrowing short and lending long:  borrow money short-term (from depositors or worse, short-term money markets) and lend long-term.  That’s where the image of the bank (and the banker) becomes critical.  Essentially, banks then become a legally sanctioned Ponzi Scheme: Continue reading “Background: Grameen Bank’s Model Under a Foreseen Threat”

Investment Strategy: How to Make Money in Bill Gross’ “New Normal”

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I re-read a copy of Bill Gross‘s April 2009 Investment Outlook and some things — besides his very consistent world-view and investment philosophy — were refreshed again, especially his parting words: Continue reading “Investment Strategy: How to Make Money in Bill Gross’ “New Normal””

Trade Notes: CQS’ Distressed Debt Fund

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Distressed debt: picking up pennies on the dollar, sometimes in front of a bulldozer.

The idea of distressed debt investing is simple enough:  most of the time, debt is bought by institutional investors (otherwise known as long-only investors, or long money) in the hope that the steady (generally in the 6-10% annual) interest returns will be good enough for their long-term obligations.  Then, as the debt cycle gets more and more speculative, you have everyone and their grandmother (sometimes literally) piling in.  As the correction inevitably comes, borrowers can’t pay and lenders panic, and debt starts selling at a discount (i.e., if you are the unlucky owner of a dollar of debt, you want to get rid of it quickly, and are willing to sell at a discount, sometimes at pennies on the dollar).  That’s distressed debt. Continue reading “Trade Notes: CQS’ Distressed Debt Fund”

Background: Hugh Hendry and Eclectica

Looks like Hugh Hendry of Eclectica Asset Management is in the news again.  I like the guy, used to be invested in the Eclectica Europe Fund when it still was Odey Eclectica (which split from the Odey group around 2006, I think).  As the story suggests, he does tend to get a lot up people’s noses, and seems to enjoy doing it.  I guess he irritates people off most because his scathing view is so often right.  His funds haven’t grown much (still around USD 450 mark I think) but he tends to have a loyal following of investors.  My favorite Hugh Hendry story was one of his famous appearances on CNBC.  Continue reading “Background: Hugh Hendry and Eclectica”