Africa is the final frontier for the bold and patient investor

Some respected fund managers expect big results from this rapidly growing region. By Emma Dunkley

Africa has supposedly been the next big thing for investors for the past decade but each time promise has been followed by grave disappointment. This time, however, against a backdrop of global stockmarkets surging ahead, many respected voices say that Africa could well deliver big for those willing to take the inevitable risk.

"Africa is an area of particular interest to me right now," says Dr Mark Mobius, the doyen of emerging market investment and long-standing fund manager at Franklin Templeton. "Africa is a very fast-growing region—from 2001 to 2010, six out of 10 of the fastest-growing countries in the world were in Africa. So we are very excited by the growth prospects in those countries."

Unlike China, Russia and other large 'emerging' countries, most parts of Africa are dubbed 'frontier' markets and are considered their smaller, less developed cousins. And with this comes the possibility of rapid expansion and the chance of reaping much higher returns.

"I view frontier markets as having tremendous potential for long-term investors, if — and this is a big 'if'— you are able to be patient and show some perseverance," says Dr Mobius. "Just a few decades ago, China and India were considered frontier markets, and when I began my investment career Japan was considered an emerging market."

With a wealth of oil, natural reserves and vast amounts of land for agriculture, the continent will likely play a greater role in providing for growing global consumption, especially as other emerging markets start to mature and make greater demands. More than half of the region's population is aged under 20, with predictions that in less than three decades Africa will have a larger working age population than China.

"Investors are always looking for the next big investment idea or sector where they can make their fortune and with the huge quantity of natural resources and excellent demographic numbers, investing in Africa can seem very appealing," says Patrick Connolly of AWD Chase de Vere.

And alongside this untapped potential, the continent is opening up to more foreign investment money. At the end of last year, Moody's assigned first-time public credit ratings to Keyna, Nigeria and Zambia, on the back of growing demand from investors for insight on sovereign creditworthiness. But be warned that even though the continent has come a long way, investing in Africa is not for the faint-hearted. While the gains could be hefty, you could experience a rocky ride or get hit with large losses in a short space of time.

"As the African market is not as developed and there are not as many investors, it could be difficult to sell out at a reasonable price in times of crisis and pressure," says Adrian Lowcock of Hargreaves Lansdown. "This is not for you if you need to access your money quickly; you would need to invest in Africa for the long-term – around 10 years or more."

Indeed, the problems with buying and selling shares in this market is a serious issue that forced the closure of the New Star Heart of Africa fund in 2009 — barely a year after its launch, says Mr Connolly. The problem also means the few Africa-specific funds available largely invest in South Africa, Nigeria ad Kenya, missing out on other countries.

"The JPM Africa Equity fund, for example, has 89 per cent invested in South Africa, Nigeria and Kenya, while the Neptune Africa fund has 81 per cent in South Africa and Nigeria, with the bulk of the rest being invested in the UK or held in cash," says Mr Connolly.

The questions you should ask, then, are how much of your portfolio should you allocate to these countries. And when money does rush into Africa, how much worse will the issue of buying and selling shares in this market get?

"These are real concerns and because of them we have no direct exposure to African equities in our clients' portfolios," says Mr Connolly. "Investing in Africa should only be considered by investors who fully understand and accept the high risks involved and, even then, for only a very small part of their portfolio."

In order to benefit from the compelling Africa growth story, though, without having to take on the risks involved with buying local companies that don't necessarily have the same corporate governance standards, you can buy a broader emerging markets fund that has some exposure to the continent or invest in a fund with Western companies that have activities in Africa.

"For most investors who may be better off investing in a more generalist fund, I like Fidelity EMEA managed by Nick Price," says Darius McDermott, managing director of Chelsea Financial Services. "Almost half (47 per cent) of this fund is invested in South Africa but there is a decent proportion in Nigeria (9 per cent) and some in Kenya (3 per cent). Nick is a very experienced manager with a good track record in this asset class."

Similarly, Gavin Haynes at Whitechurch Securities suggests opting for a broader fund that gives you access to Africa, but alongside other countries so you are not putting all your eggs in one basket. "I would prefer a frontier markets fund which can provide you with exposure to Africa as part of a wider remit. I recommend the Franklin Templeton Frontier Markets fund, managed by the highly experienced Dr Mobius, although this fund is going to be closed to new investors at the end of June."

You can also gain wider access to Africa by investing in themes, not just regions. Mr Lowcock suggests the JM Finn Global Opportunities fund, which is based on the global theme of rising urbanisation and industrialisation.

"For the majority of people, I would say go for a broader fund," says Mr Lowcock. "A manager who can be flexible and make investment decisions and move in and out as they see fit, rather than Africa-specific, which is much higher risk. The JM Finn fund has around 13 per cent in Africa and the Middle East, so this would be my tip."

So while Africa is on course to see some stellar growth rates and could play a small role in spicing up your investment portfolio, this region is higher risk than many others. It is, after all, the final frontier where few have boldly gone before.

Emma Dunkley is a reporter at citywire.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
peoplePerformer had recently been diagnosed with prostate cancer
News
The surrealist comedian at the Q Awards in 2010
people
News
The comedian, 42, made the controversial comment following the athlete’s sentencing to five years for the culpable homicide of Reeva Steenkamp on Tuesday
people
Life and Style
Could you tell the difference between this and an organic alternative?
food + drink

Culinary experts in The Netherlands thought it was 'fresh' and 'tasty'

PROMOTED VIDEO
Arts and Entertainment
One Direction
music
Sport
Today's Liverpool Echo back page
football
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Arts and Entertainment
JK Rowling will not be releasing a 'romance' novel anytime soon
books
Arts and Entertainment
Contestants during this summer's Celebrity Big Brother grand finale
tvBroadcaster attempts to change its image following sale to US
Life and Style
tech

Of all the computers Apple has ever made there’s only one that Steve Jobs had to sell his car to finance

Arts and Entertainment
Sarah Dales attempts to sell British Breeze in the luxury scent task
tvReview: 'Apprentice' candidates on the verge of tears as they were ejected from the boardroom
News
One of the 'princesses' in the video
videoYouTube reinstates sweary video after takedown for 'violating terms'
News
Call me Superman: one of many unusual names chosen by Chinese students
newsChinese state TV offers advice for citizens picking a Western moniker
Arts and Entertainment
film

Marvel has released first teaser trailer week early after it leaked online

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SQL Developer with T-SQL, Watford, Hertfordshire - £350 - £360

    £350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...

    IT Systems Business Analyst - Watford - £28k + bonus + benefits

    £24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Day In a Page

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

    A crime that reveals London's dark heart

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
    Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

    Lost in translation: Western monikers

    Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
    Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

    Handy hacks that make life easier

    New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
    KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

    KidZania: It's a small world

    The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
    Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

    'Renée Zellweger's real crime was to age'

    The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
    From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

    Disney plans live-action remakes of animated classics

    From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
    Thousands of teenagers to visit battlefields of the First World War in new Government scheme

    Pupils to visit First World War battlefields

    A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
    The 10 best smartphone accessories

    Make the most of your mobile: 10 best smartphone accessories

    Try these add-ons for everything from secret charging to making sure you never lose your keys again
    Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

    Liverpool v Real Madrid

    Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
    West Indies tour of India: Hurricane set to sweep Windies into the shadows

    Hurricane set to sweep Windies into the shadows

    Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
    Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

    A new American serial killer?

    Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
    Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

    Sting to trap paedophiles may not carry weight in UK courts

    Computer image of ‘Sweetie’ represented entrapment, experts say
    Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

    Return to Fukushima – a land they will never call home again

    Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
    Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

    Wildlife Photographer of the Year

    Intimate image of resting lions claims top prize
    Online petitions: Sign here to change the world

    Want to change the world? Just sign here

    The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?