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
Saturday 01 June 2013
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
- 1 Mario Balotelli: Staff at arson-hit Manchester Dogs' Home convinced Liverpool striker is behind five-figure donation
- 2 There is literally not a single woman in this iPhone 6 queue
- 3 Scottish independence: Tory revolt against 'devo max' grows as Rail Minister Claire Perry joins
- 4 Hitler’s former food taster reveals the horrors of the Wolf’s Lair
- 5 Scottish independence referendum: JK Rowling, Russell Brand, Nigel Farage and more react to the 'No' vote
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Scottish independence: The Queen breaks silence on referendum debate – as think tank warns of £14bn black hole if Scotland votes Yes
Archbishop of Canterbury admits doubts about existence of God
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize