Beyond the modern, glassy buildings of Astana, the capital of Kazakhstan, lie the vast, sprawling lands and the untapped potential of Central Asia, a part of the world that Bruno del Ama, CEO of New York-based Global X Funds, calls “a true frontier market,” and one that has inspired him to put together a dedicated Central Asian ETF.
The region, which encompasses Kazakhstan, Mongolia, Kyrgystan, Uzbekistan, Tajiskistan and Turkemenistan, is known for being rich in natural resources, particularly oil (40% of the new ETF is, in fact, dedicated to energy), and natural resource exports have helped economies there to boom, in particular from their exports to China.
The International Monetary Fund (IMF) predicts a 5.5% GDP growth rate for Central Asia in 2013, but “we’ve only scratched the surface of the great potential there,” said del Ama, “as this region is one of the richest on earth with regard to natural resources and there’s a long way to go yet.”
From oil to uranium, from industrial metals to precious metals, Central Asia’s resources are vast, and unlike other emerging markets, “Central Asia is still truly a frontier market in that it’s a story based on natural resources, and not on the dynamics of the growing middle class, del Ama said. “Since these parts of the world are very sparsely populated, [the middle class] part of the story is a long way off still, and we’re in the very early stages of development.”
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But the region’s tremendous opportunities evidently come at a price, and Central Asia is also extremely raw in many other ways, not least in the development of institutions within individual countries, the rule of law and its application, the lack of infrastructure in various sectors (energy included) and, of course, corruption.
Nevertheless, del Ama is convinced that this is the right time for a truly dedicated investment product that offers the best of the region, and he’s taking a cue from Global X’s Colombia ETF, “which we launched five years ago, when Colombia was still plagued by issues of drug trafficking and we had no idea which direction that would go in.”