Investors looking, not leaping back into Africa


Having fled Africa in droves during last year’s global financial turmoil, portfolio investors are slowly starting to take another look but are not leaping back in as they have with other emerging markets.

“In the last three to four weeks, we’ve seen some signs of turnaround,” said John Mackie, Johannesburg-based head of African fund investment at Stanlib, adding that two new European investors had recently signed up to his Africa Equity Fund.

“The signs are there that investors are going to come back, but certainly not on the same scale as last year,” said Mackie, whose organisation manages more than $2 billion in assets in sub-Saharan Africa, not counting South Africa.

Emerging equity funds have received inflows of $7.3 billion this year, according to fund tracker EPFR Global, although most of that has been to Asia, largely on hopes China‘s $600 billion stimulus package will lead the region out of the doldrums, Reuters notes.

While most sub-Saharan African economies are expected to post moderate growth this year, hedge funds in particular remain wary after being forced into loss-making sales of African assets last year to repatriate cash to the United States and Europe.

“They probably burnt their fingers and I don’t think hedge funds will necessarily be back very soon,” said Roelof Horne, manager of Investec’s $400 million Africa fund.

However, Horne and others said they still believed in the long-term “Africa story” — that the continent, home to a billion people and huge mineral resources, is firmly on the right economic track and putting its chaotic and often calamitous past behind it.

“Has something changed in Africa, or is this just a cyclical blip? Was the Africa story of the last four years just part of the asset bubble that we saw globally? My answer is no,” Horne said.

In the last month, African equity markets have started to tick up, suggesting some investor interest even as the International Monetary Fund cut its continental growth forecast for 2009 to 2% from 3.4% seen in January. For instance, the stock market in NigeriaAfrica‘s most populous country and one of its hottest investment destinations in the last five years — has gained 22 percent since April 1.

However, it is still only at mid-2006 levels and is just 40 percent of the high of a year ago when investors rushed in on the back of bumper state oil revenues and hopes for massive infrastructure spending.

That said, Nigeria — and especially its top tier banks — remains a favourite for most Africa-wide fund managers, who are looking to the inevitable emergence of a middle class in a country of 140 million people.

Other favoured sectors in Nigeria and elsewhere are telecommunications, cement and construction, and brewing and retail, reflecting the gradual diversification of economies away from subsistence agriculture and resource extraction.

“Individual investors who understand and who are buying into the long-term story are viewing it as an entry opportunity,” said Ayo Salami, London-based manager of Duet’s African Opportunities Fund.

Liquidity remains a problem in nearly all sub-Saharan equity markets outside South Africa, meaning that if sustained and large sums of money do start returning, prices could rise as dramatically as they fell a year ago.

“I think people will look back at early 2009 and say, ‘Wow, that was the great buying opportunity in Africa‘,” Investec’s Horne said.