EFG Hermes’ Frontier division continued to expand its direct presence in — and coverage of — key frontier emerging markets during 2018, despite the challenging macroeconomic and political environments in many of the regions in which the Group operates.
In 2018, emerging markets endured significant capital outflows, a rise in protectionism as China and the United States opened a trade war, a tightening of monetary policies by many central banks around the world, led by the US Federal Reserve, and a collapse in oil prices in the second half of the year.
Equity capital market transactions dried up and brokerage volumes slowed across frontier and emerging markets. Despite facing the same challenges as other players in the market, EFG Hermes Frontier strengthened its position in the markets in which it operated as 2018 opened, entered new markets, and rolled out new products. As a result, EFG Hermes Frontier made a notable contribution to the Group’s financial results in 2018 despite it being the newest division on the investment bank side of the Group.
The primary challenges to emerging markets across Sub-Saharan Africa was the tightening of monetary policy by many developed economies around the world and the subsequent strengthening of the US dollar. Falling oil prices were also a challenge for economies with significant petroleum components, such as Nigeria. Nonetheless, EFG Hermes’ operations in both Kenya and Nigeria were not just resilient in the face of these macroeconomic challenges — they delivered growth and expansion.
The Group’s first Sub-Saharan Africa office, located in Nairobi and launched in August 2017, had a very solid 2018. Despite challenging local market conditions and competition from both local and regional brokers, EFG Hermes continued to build on its early success and closed the year as a top-five broker by market share. Amid growing interest from international institutional investors, the Group expanded its on-the-ground presence in Nairobi.
On the opposite coast of the continent, EFG Hermes announced in July 2018 its acquisition of Nigerian brokerage Primera Africa. The acquisition serves as a starting point for further expansion into West Africa and will allow the Group to offer both research and a full suite of brokerage services. EFG Hermes will strengthen its on-the-ground presence in Nigeria with additional staff, wider and deeper research coverage, and with the planned roll-out of investment banking advisory services. Primera Africa will be re-branded as EFG Hermes Nigeria in 2019.
South and Southeast Asia
Southeast Asia faces significant fallout from the brewing trade war between the United States and China. Companies in both South and Southeast Asia are tightly integrated into global supply chains and are particularly sensitive to swings in Chinese exports, meaning the region could face headwinds from a deepening of the trade battle. Despite this potentially challenging macro backdrop, EFG Hermes’ operations in the region continued to perform well throughout 2018.
Early in the year, the Group launched its newest country office in Dhaka, Bangladesh, in response to a growing demand from EFG Hermes’ global institutional clients eager to explore opportunities in this fast-growing economy. The branch’s first-year results were satisfactory: EFG Hermes now has the largest market share of international institutional investors trading Bangladesh, with more expected to enter the quickly expanding market during 2019.
Notably, the South and Southeast Asian region was the source of EFG Hermes first successfully concluded investment banking transaction in frontier emerging markets. The firm served in July 2018 as a joint bookrunner for microlender ASA International’s initial public offering on the London Stock Exchange.
In parallel, the firm engaged in a careful and well-thought-out business restructuring in Pakistan, beginning with a change in the division’s management. Over the course of 2018, EFG Hermes Pakistan weathered political and economic turbulence, putting it on a strong footing for what management expects will be a solid 2019. One of the main targets for the coming year will be to roll-out EFG’s digital platform in Pakistan.
We continued to bolster our client hosting capabilities across geographies capitalizing on our on-the-ground presence and strength in corporate access.
2019 will be a year of consolidation for EFG Hermes’ Frontier division. The Group will look to leverage the expanded reach and the strong reputation it has built over the last two years to deepen its reach within the most promising frontier markets across Africa, the Middle East, and South and Southeast Asia. EFG Hermes Frontier will also aim during the course of the new year to widen its product offering and diversify the base of customers it serves. Additional staff members will be added across the country offices in both Sub-Saharan Africa and South and Southeast Asia to ensure that the Group continues to deliver the highest quality services to all its existing and new clients. The firm also expects to enter the promising Vietnamese market in 2019. South-East Asia, particularly Vietnam, remains a key focus for the frontier business, with plans in the works to sign a joint venture agreement with a Vietnamese investment bank could potentially make EFG Hermes the first non-Asian investment bank to enter the Vietnamese market. Vietnam is notable in that multiple IPOs in 2018 attracted the interest of foreign investors.
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