Newborn Investing

Many people seek out start-up companies for investment, but how about start-up countries?

A good example is Kosovo. The former Serbian province burst onto the international scene in the late ‘90s, when NATO intervened in what was until then a Balkan civil war. Conflict between the Albanian Muslims and the Orthodox Serbs goes back at least to World War II, although the first Battle of Kosovo was fought in 1389.

Because of NATO’s actions, Kosovars idolize all things American. Bill Clinton and Madeleine Albright are heroes, with statues honoring them along boulevards in the capital city. The Kosovar economy is grim, however, with unemployment exceeding 20% and a net trade deficit close to 45% of GDP. Its closest neighbor and natural trading partner, Serbia, is currently its sworn enemy, refusing to recognize its legitimacy.

Why is this significant? Because situations like Kosovo are precisely where investment opportunities lie. When a country emerges from war or political chaos most investors shy away, mistaking uncertainty for risk. Prices well below a company’s intrinsic value are the result. Many firms in the former Yugoslavia trade at trailing price/earnings ratios of 4 to 7—a half to a third of valuations in the developed world.

Cheap valuations mean higher long-term returns, for those with the financial flexibility to wait. There are frontier markets all over the world–the Balkans, Vietnam, Nigeria—and the opportunities seem boundless. Favorable demographics must contend with unresolved political issues, and finding a trustworthy partner in these markets can be challenging. But for long-term investors, such markets truly are on the cutting edge.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-01-08T15:51:47+00:00 November 15th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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