Opportunities in a World of Fear

> Ex-Deutsche Bank, UBS executive targets Algeria, Iran, Russia
> Joins Goldman Sachs, BofA, in touting emerging-market assets

For Yassine Bouhara, who ran equity-trading units at Deutsche Bank AG and UBS Group AG before stepping down in 2011, the flight by investors from the world’s emerging markets is an overreaction.

“We’re living in a world of fear,” said Bouhara, who founded Tell Group SA in 2014 to help investors buy assets in markets from Algeria to Iran. “There is this instant dislocation that takes place as soon as something happens that’s perceived as risky. The dislocation creates obvious opportunities.”

Bouhara, who was born in Algiers, isn’t alone in scouring emerging markets for bargains after a three-year slump. Both Goldman Sachs Group Inc. and Bank of America Corp. say now could be the time to buy assets in developing nations, even as Russia and Turkey square off along the Syrian border, a corruption scandal rattles Brazil and concern that the Chinese economy is slowing helps drives commodity prices to a six-year slow.

Investors have exaggerated the selling of what they view as risky emerging-market assets, just as they did during the European credit crisis in 2011 when Spanish and Italian bonds slumped, said Bouhara, 48. Some of those securities have since more than doubled in value.

Europe Crisis

“If you’d invested at the higher moments of fear in Spain and Italy, you’d have made a fortune,” Bouhara said in an interview. “Two years ago, people were buying Russia and Brazil like they were western markets and now they’re being discounted to frontier assets. Is Russia a new Spain and Italy? Is Brazil a new Spain and Italy?”

Investors yanked about $93 billion from funds that place money in developing-market stocks and bonds this year, adding to about $92 billion of withdrawals for the previous two years combined, according to Cameron Brandt, a research director at EPFR Global.

Not everyone is convinced the hemorrhaging is over. Willem Buiter, Citigroup Inc.’s chief economist, said in a note it’s impossible to declare “EM is ‘out of the woods.’” The Federal Reserve might raise interest rates this month, further sapping demand for riskier emerging-market investments, while China could provide another “negative shock” by devaluing its currency next year, Buiter wrote.

Debt Bills

Meantime, developing countries are facing their biggest debt bills yet from international bond markets that funded them in boom times. Companies and governments in developing nations must repay an unprecedented $262 billion of notes in all currencies outside domestic markets in 2016, data compiled by Bloomberg show. The bond tab will rise further in 2017 to $352 billion.
The MSCI Emerging Markets Index, which tracks shares of 837 companies, has tumbled 17 percent. In developed nations, yields on assets including U.S. Treasuries and German bunds are near historic lows.

“We’ve never had a situation before where we have liquid, safe assets at negative returns and illiquid, perceived risky assets at extreme discounts,” said Bouhara. “There is no middle way. It’s a very interesting new trend and it seems to be the new culture.”

Bouhara joined Deutsche Bank in 1996 and rose to head of the Frankfurt-based lender’s equities unit in 2004. Six years later, he became co-head of the same business at UBS. He was among a group of UBS executives who resigned in 2011 after rogue trader Kweku Adoboli made unauthorized bets that resulted in a $2.3 billion loss for the bank. Adoboli was convicted of fraud and accused of hiding the risk of his trades using a secret account.


Iran Deals

Bouhara started Tell Group to manage assets, provide financial advice and broker deals for clients, which include wealthy individuals, institutional investors and firms overseeing family fortunes, he said. Co-founders include Noreddine Sebti, a former head of equities trading at Deutsche Bank.

Tell Group is working on a “dozen” deals worth up to several billion dollars, including two that are “ready to go” in Iran, pending the lifting of international sanctions, Bouhara said. It’s advising on potential transactions tied to everything from aircraft to mining debt, Bouhara said. Vessels in the shipping market are trading at discounts of 40 percent, while Russian commercial real estate can provide yields in the double-digits, he said.
“You have bottom-picking opportunities during the dislocation,” said Bouhara. “And then you can wait and trade the reverse. There’s always a point where it reverses.”