There are important subsets of the Frontier Market universe that stand to benefit from lower oil prices. Lower oil prices are an unambiguously positive development for the countries of Frontier Asia (excluding Kazakhstan) and East Africa. Egypt will also benefit from lower a lower oil import bill, and perhaps the opportunity given by lower prices to cut some subsidies. While they also bring benefits to Central and Eastern European energy importers, these countries are not growing strongly and in the eyes of investors, face other important headwinds that are not in place in Asia and Africa.
Among those countries being hardest hit are Nigeria and Kazakhstan. In the case of Nigeria, the country lacks a large fiscal buffer from which to maintain spending/run countercyclical policies. Kazakhstan has a large SWF, which in %GDP terms, rivals even that of Saudi Arabia. But it is also facing substantial regional pressures from developments in Russia and the rouble.
On a positive note, there has been substantial differentiation by investors between markets. Of note is that East Africa has not caught much contagion from Nigeria, and even in Saudi Arabia, most well-researched non-commodity stocks have performed well, ie, retained YTD returns well over 20%.
Hedi Ben-Mlouka is manager of the Duet Frontier Fund