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Next Big Thing For Investors: Is It Africa?

Next Big Thing For Investors: Is It Africa?

In a world that’s offering little in the way of economic growth, investors are recognizing Africa as the next best thing, Reuters reports, according to MSN.com.

Africa’s stock markets have done better recently than mainstream emerging markets. The MSCI Emerging Markets Index fell 10.8 percent in the 12 months through Feb. 11, while its Frontier Markets Africa Index, which tracks Africa’s smaller exchanges, rose 3.4 percent, according to Reuters.

The pace of economic, financial and industrial development now taking place in Africa is comparable to Latin America and mainland Asia 20 or 30 years ago in — the last next big things.

Larry Seruma manages the $42-million Nile Pan Africa Fund, the best performer among the few funds that specialize in African stocks since it was introduced about four years ago, according to the Reuters report.

“The compelling case for the region is driven by growth, which is driven by demographics,” Seruma said. Economic output per capita “is very low and growing at a very fast rate, and in 2050 Africa will have the largest workforce globally. There will be opportunities to provide goods and services to this growing population.”

Business-friendly policies such as privatizing state industries and large-scale infrastructure projects are also benefiting sub-Saharan Africa, says Babatunde Ojo, an analyst specializing in the region for portfolio manager Harding Loevner.

The Harding Loevner Frontier Emerging Markets Fund has 26 percent of its $340 million in assets in Africa, Reuters reports.


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Governments are reducing the cost of doing business and improving economic
growth, Ojo said.

Seruma and Ojo both have some suggestions from their funds for those interested in investing in Africa.

Seruma’s picks

– MTN Group Ltd., a cellphone service provider in South Africa, Ghana, Zambia and Nigeria, has a 4-percent yield, low debt and tremendous growth potential, especially in mobile use, Seruma said. His price target on the stock of $24.50 is nearly 40 percent above recent prices.

– Africa Oil Corp. is a good natural resource choice, Seruma said. Africa Oil explores for oil and gas in partnership with Tullow Oil PLC and has discovered oil reserves in Kenya.

– Tullow Oil PLC: Seruma’s price targets for the stocks are 1,235 British pence for Tullow, about a 55 percent gain from current levels, and C$15 for Africa Oil, about 80 percent higher than where it stands now.

– Old Mutual PLC is a South African financial-services concern good for risk-averse investors. As Africans grow wealthier, they need a place to put their money and also buy mortgages, investment products, insurance and other financial products. Seruma’s target for Old Mutual is 235 British pence compared with recent prices in the low 180s.

Seruma acknowledges that investing in Africa has potential hazards.

Corruption is a big issue but it’s getting easier to do business in many places. Political and legal systems have grown stronger and more transparent across the region.

Still, Seruma said investors should keep allocations to Africa to 5 percent or less
and remember that the future can take a while to arrive.

“You have to take a long-term view,” Seruma said. “The story is going to unfold over many
years.”

Ojo’s picks

– Dangote Cement PLC in Nigeria, set to benefit from increased infrastructure spending. Dangote cement prices are higher in Africa than elsewhere and Dangote has “the best margins in the world” for its industry, Ojo said, because it’s an especially low-cost manufacturer. Dangote’s return on equity — about 45 percent — is more than double the average for the global basic-materials sector, he said.

– Zenith Bank PLC and Guaranty Trust Bank PLC, for their strong asset quality, capable management and emphasis on a corporate clientele.

– Safaricom Ltd. in Kenya is  a good example of a dominant telecom player, controlling two-thirds of the country’s market, Ojo said. While that may not seem to leave much room for expansion, Safaricom is seeing rapid growth in data usage and services for corporate customers to compensate for stagnation in voice traffic, he said.