This interview is about investing in frontier markets (like Bangladesh and Pakistan). Fund manager Manny Stotz says these markets haven't recovered since 2008, but company profits keep growing, so valuations are cheap. He's bullish on two Bangladeshi consumer goods companies (a third of his fund, held forever) and a Tanzanian brewer (85% market share, strong moat). He warns of volatility but sees big long-term returns.
Manny Stotz, founder of Kingsway Capital, discusses investment opportunities in frontier markets—focusing on countries such as Egypt, Bangladesh, and Pakistan—in this episode of Invest Like the Best. The core thesis is that these markets offer significant long-term return potential due to demographi
Manny Stotz, founder of Kingsway Capital, focuses on investing in frontier markets. The core thesis of this episode: in densely populated, low-GDP-base countries such as Egypt, Bangladesh, and Pakistan, long-term holdings in high-quality branded consumer goods companies can generate outsized returns. The most significant judgment in the entire episode: these markets have never truly rebounded since the 2008 financial crisis. The MSCI Frontier Markets Index remains roughly 50% below its 2007–2008 peak, while corporate earnings have grown every year — meaning valuations have been cut in half, yet fundamentals remain intact. This is a classic divergence between "bad news and good profits."
Stotz argues that frontier markets (with a population of approximately 3 billion) are on the verge of a consumption boom similar to that seen in China/India 10–15 years ago, driven by the nonlinear transition of per capita GDP from $1/day to $3–5/day.
Stotz emphasizes that this is not a story of "consumption, consumption, consumption," but rather "quality, quality, quality" — buy only the best, not the rest.
Stotz defines "high-quality enterprises" as those capable of consistently maintaining a high return on invested capital (ROIC) without leverage, with moats derived from intangible assets (brands, distribution networks) rather than tangible assets.
Stotz cautions: "The 'end of brands' narrative seen in the West (e.g., the impact of Amazon's private labels) simply does not exist in my market. There are hardly even supermarkets here—formal retail penetration is only about 5%."
Stotz argues that the fundamental reason for the persistent valuation compression in frontier markets over the past six years is not deteriorating fundamentals, but a capital structure issue — the vast majority of funds offer daily liquidity, triggering a vicious cycle of redemptions, selling, NAV declines, and further redemptions.
Stotz notes: "We may be among the last 'standers' in this space. But the good news is that precisely because others are being forced to sell, we can buy at extremely low prices."
Stotz argues that in frontier markets, the greatest competitive advantage is not a complex quantitative model, but "showing up" — something U.S. investors cannot replicate.
Stotz emphasizes: "Our competitive advantage is intangible — relationships with LPs and portfolio companies, a commitment to long-term holding, and the counter-cyclical ability to add positions when others are leaving."
Stotz argues that investing in frontier markets requires understanding each country’s “business model”—its source of sustainable competitive advantage. He recommends reading Guns, Germs, and Steel and Why Nations Fail.
Stotz concludes: “Bangladesh is like the next Korea—an underappreciated development miracle. We allocate nearly one-third of our fund there, holding only the two best companies, with the intention of holding them forever.”
| Position | Guest Stance | Key Data |
|---|---|---|
| BAT Uganda | Fully liquidated (case study) | Entry at 5x P/E, dividend yield ~20% |
| Tanzanian Brewer (unnamed) | Bullish | 85% market share, gross margin ~60%+ |
| Bangladeshi Consumer Goods Companies (unnamed, two) | Core holdings | ~1/3 of fund, intended for permanent holding |
| Egyptian Payment Company (unnamed) | Small position | Recently listed |
| Coca-Cola | Used as quality framework case | Gross margin 65%, operating margin 35%, Capex/Sales 4% |
1. "Frontier markets have not rebounded since 2008, with the MSCI index still 50% below its peak, yet corporate earnings have grown every year—this is a classic divergence of 'bad news and good profits.'" — A halving of valuations alongside intact fundamentals is a textbook scenario for contrarian investing.
2. "Our competitive advantage is not the model, but 'showing up'—walking into offices in Kampala, drinking tea in Pakistan, building relationships in Bangladesh. American investors cannot do it because they dare not come." — The moat at the execution level is harder to replicate than that at the analytical level.
3. "Once your market share is 2-3 times that of the second-place player, and you keep investing in brand and distribution, the game is essentially over." — The self-reinforcing moat mechanism for branded consumer goods companies in frontier markets stems from competitors' inability to match their advertising/distribution spending.
4. "Bangladesh's business model is the world's lowest-cost labor (one-quarter of China's wages), with exports generating a current account surplus and no need to borrow in US dollars. This is a better macro story than India." — A country-level "business model" analytical framework offers more predictive power than simply looking at GDP growth rates.
5. "We only buy the best, not the rest—if I can only buy one company in Nigeria, why buy the fifth-best? They face the same country risk, but the returns differ." — The logic of concentrated holdings: replacing industry diversification with country diversification without diluting quality.
6. "These markets have no Walmart, no Amazon, no 'healthier' startup brands—only 5% supermarket penetration and 1 million mom-and-pop shops transacting in cash." — The competitive environment for consumer goods companies in frontier markets is far superior to that in developed markets.
7. "The leap from $1/day to $3/day is nonlinear—more stable income, declining savings rates, and the onset of brand consumption. This is the daily aspiration of 3 billion people." — The core mechanism of the consumption S-curve is the underlying driver of frontier market investing.
8. "We are learning about digital businesses—Pakistan went from zero to 60 million smartphones in just a few years. You will not see the next Tencent, but you will see interesting local champions." — Internet opportunities in frontier markets are accelerating, but their form differs from that in China and the US.