Despite global economic slowdown in recent years, sub-Saharan Africa is forecast to continue its momentous growth at a rate of 12 percent. Investors, like Ryan Shen-Hoover, are not surprised. Hoover currently runs the the blog Investing in Africa and works as an investment analyst for Africa Capital Group, an asset manager that helps U.S. investors add African exposure to their investment portfolios. We caught up with Hoover to get his advice on how to invest in the African market and his picks for investment vehicles.
You seem to be excited by the Global X Nigeria Index ETF (exchange-traded fund). Why?
I’m excited by any investment vehicle that improves access to what is, in my view, Africa’s most dynamic economy. Nigeria is huge. Its markets are reforming. And the IMF (International Monetary Fund) expects that its economy will grow at a rate well over 6.5 percent over the next five years.
Before the Global X Nigeria Index came along there wasn’t an easy way for American investors to purchase Nigerian stocks short of opening a foreign brokerage account. The ETF allows them to do so in a cost-effective way.
Are ETFs the best way for first-time Africa investors to get their feet wet?
Yes. They give investors instant diversification across a region or country at a very low cost, and you can buy them through your current broker. Their other big advantage is that they trade just like stocks do. You can buy as much or as little as you like, you can trade them throughout the day, and you can even sell them short.
What other Africa funds do you think are most promising?
The Nile Pan Africa Fund and the Wasatch Emerging Frontier Small Countries Fund have posted impressive returns, but they also come with significantly higher expense ratios than does an ETF like the Market Vectors Africa Fund or the Global X Nigeria Index.
How do you feel about directly investing in African stock markets? Does it offer more lucrative opportunities as opposed to being limited to ETFs?
Absolutely. The downside to ETFs is that they typically invest only in the largest African stocks because it is difficult for them to build meaningful positions in the smaller ones. Due to all of the interest from institutional investors, large-cap African stocks tend not to be as bargain-priced as their smaller counterparts. To access these small-cap stocks, you will need to open a brokerage account in the country where that stock is listed.
Which African economies do you feel are most promising from an investor’s standpoint?
At the moment, I see a lot of interesting stocks in Cote d’Ivoire, Uganda, and Zambia. These countries will likely grow their economies in the 6-7 percent range over the next five years. This isn’t unusual as Africa goes, but unlike other fast-growers like Ghana and Nigeria, stock valuations don’t reflect this bright future.
What is the best, single piece of advice would you give to someone looking to invest in the African stock markets?
Educate yourself. Africa is not a country. It’s many countries with widely different histories, economies, and politics. Put in some time to learn about one or two of them. Follow their news. Travel there, if possible. Then let this knowledge inform your stock-picking. If this isn’t feasible, stick with Africa-focused ETFs, mutual funds, or money managers.