MINT a meaningless acronym for four disparate countries

It seems that every day there are new terms to describe segments or trends in emerging markets. However, we think MINT is a fairly meaningless acronym to describe four countries (Mexico, Indonesia, Nigeria and Turkey) that have little in common.

Individually, we see value in a few of the underlying countries. For example, we have been generally positive on Mexico and Indonesia for the last couple of years but recently have started to take profits in both markets. We were positive on Turkey in 2014 but our outlook has become more wary over the last few months due to the rising political temperature ahead of the upcoming June election. We are looking for more clarity in this market following the election. Nigeria is actually a frontier market in which we have zero exposure, largely on the basis of the unstable security and political situation there as well as the obvious negative of lower oil prices.

Of the above countries, we examine Indonesia more closely. The pace of economic activities has evidently decelerated in Indonesia in the first quarter of 2015 with auto sales, cement sales and retail sales falling into negative territory. Consequently, first quarter 2015 tax revenue collection decreased by 15 per cent compared with last year, significantly falling short of the government’s full-year tax revenue growth target of 30 per cent. This decline poses risks to the elevated market expectations for infrastructure investments in Indonesia. The stockmarket had largely ignored the weak economic data points with the JCI hitting an all-time high in early April but quickly correcting within two weeks amid a slew of weak corporate results, particularly those of the large-cap banks as a result of non-performing loan issues.

We recognise the cyclical challenges of Indonesia, driven primarily by the commodity downturn, but remain structurally bullish on the market on hopes of the new administration’s reform momentum. Most notably, we are encouraged by the marked-to-market increase in petrol price year to date as it demonstrates the Jokowi government’s consistency and commitment to petrol subsidy reforms even in a rising oil price environment, even though it could dampen consumption in the near term. While we are still expecting earnings downgrades in the near term, especially in the infrastructure sector, the recent correction has reset the market’s expectations and we will consider opportunistically adding exposure to quality franchises that are trading at what we believe are attractive valuations.

Emerging markets remain an asset class that requires up-close examination for the continuing differences between the various economies. Generalities are insufficient substitutes for close examination of governments, economic conditions and corporate conditions. MINT countries represent only a small part of the many countries that comprise emerging markets — countries that are expected to be some of the next generation of leading world economies.

Anthony Cragg, Emerging Markets Senior Portfolio Manager, Wells Fargo Asset Management