Frontier and emerging markets (Vietnam)

Dylan Waller

Thematic (Sector/Industry)

Bulgaria has some stand out features compared to other frontier and emerging markets in Europe, including its lower wages, select favorable macro characteristics (notably the CA surplus, low debt and favorable RX reserves) and relatively stable political environment. However, challenges within this market include the high level of poverty and unemployment and most notably the extremely poor demographics. Another key risk for the market includes the country's relatively high level of external debt. The country's external debt current stands at over 61% of GDP (as of November 2018), which is a notable risk for the country.   The key issue with Bulgaria is the country's low youth population and the fact that a large amount of Bulgarians are working outside the country. However, the unemployment rate has declined drastically and is well below the peak of over 10% experienced during 2013-2015. Sofia itself has a much more favorable economic environment, as it is an excellent centre for businesses involved in software and IT to set up shop to reap the benefits of talented, low cost labour. Growth has declined slightly from the higher levels experienced during 2016-2017 and is largely being driven by domestic consumption and real estate growth.  Export growth has been declining in recent years given that most of its trade partners are European countries. The World Bank projects that growth will be around 3.6% in 2019 and 2020, which is around the average level of growth experienced within countries in MSCI Frontier Markets.  Other favorable characteristics of the economy includes its high level of foreign exchange reserves and lower level of debt compared to that of other frontier and emerging markets.  Furthermore, wages in Bulgaria are extremely low compared to that of its peers in Europe, which leaves room for further consumption oriented growth in the coming years if wages continue to rise.  Tourism could be an additional catalyst, mainly because the 8 million visitors it receives annual is significant given that it exceeds the country's total population. Overall, the macroeconomic picture is hazy and the country's exposure to Europe is also an area of concern.  Furthermore, some of the largest companies listed on the stock market are either overly diversified in operations, have had lackluster growth and have strong exposure to markets such as Russia and the Ukraine.  The annual turnover of the stock market during 2018 was only $315.8 million, which means the ADTV was only slightly above $1 million.  The market was removed from MSCI Frontier Markets in 2016 and moved to the standalone index due to the small size and low liquidity of the market.  MSCI Bulgaria (only 2 companies) currently trades at 9.5x PE and 0.56x PB.  The most notable name to follow is Sopharma, which is a pharmaceutical company that also exports its products to other markets.  Participation in the local stock market is not ideal at the moment.

Bulgaria has some stand out features compared to other frontier and emerging markets in Europe, including its lower wages, select favorable macro characteristics (notably the CA surplus, low debt and favorable RX reserves) and relatively stable political environment. However, challenges within this market include the high level of poverty and unemployment and most notably the extremely poor demographics. Another key risk for the market includes the country's relatively high level of external debt. The country's external debt current stands at over 61% of GDP (as of November 2018), which is a notable risk for the country.    The key issue with Bulgaria is the country's low youth population and the fact that a large amount of Bulgarians are working outside the country. However, the unemployment rate has declined drastically and is well below the peak of over 10% experienced during 2013-2015. Sofia itself has a much more favorable economic environment, as it is an excellent centre for businesses involved in software and IT to set up shop to reap the benefits of talented, low cost labour.  Growth has declined slightly from the higher levels experienced during 2016-2017 and is largely being driven by domestic consumption and real estate growth.  Export growth has been declining in recent years given that most of its trade partners are European countries. The World Bank projects that growth will be around 3.6% in 2019 and 2020, which is around the average level of growth experienced within countries in MSCI Frontier Markets.   Other favorable characteristics of the economy includes its high level of foreign exchange reserves and lower level of debt compared to that of other frontier and emerging markets.  Furthermore, wages in Bulgaria are extremely low compared to that of its peers in Europe, which leaves room for further consumption oriented growth in the coming years if wages continue to rise.  Tourism could be an additional catalyst, mainly because the 8 million visitors it receives annual is significant given that it exceeds the country's total population.  Overall, the macroeconomic picture is hazy and the country's exposure to Europe is also an area of concern.  Furthermore, some of the largest companies listed on the stock market are either overly diversified in operations, have had lackluster growth and have strong exposure to markets such as Russia and the Ukraine.  The annual turnover of the stock market during 2018 was only $315.8 million, which means the ADTV was only slightly above $1 million.  The market was removed from MSCI Frontier Markets in 2016 and moved to the standalone index due to the small size and low liquidity of the market.  MSCI Bulgaria (only 2 companies) currently trades at 9.5x PE and 0.56x PB.  The most notable name to follow is Sopharma, which is a pharmaceutical company that also exports its products to other markets.  Participation in the local stock market is not ideal at the moment.

Bulgaria Travel Note