Taking stock
If politics and governance concerns alone held the key to making investment decisions, many of Africa’s stock markets would seem crazy places for investors to place their money. However a growing number of funds now offer investors the chance to extend their portfolios – not only into the relatively large and liquid bourses in Lagos, Cairo and Johannesburg, but also into such places as Malawi, Uganda and Zambia.
Several funds have developed seemingly counter-intuitive strategies based on the fact that even in a globalized world, Africa’s economies are still very unconnected. The recent violence in Kenya has not leaked across its borders; Zimbabwe’s political meltdown has not tumbled markets in Mozambique or Zambia. Indeed, funds now regularly look beyond present Africa upheavals with optimism.
Moscow-based Renaissance Capital has been encouraging investors to look at Zimbabwe for the past six months. Ben Robinson, one of the managers at New Star’s Heart of Africa Fund, which raises capital and deploys investments, says the fund recently “used weakness in Kenya to top up on some stocks”.
“Having a good spread across the region is key,” Robinson tells Emerging Markets. He says that his is “a high risk fund”, as some of the markets it invests in are “considerably less liquid”. Some 4% of Heart of Africa is invested in Zambia and 3% in Malawi. However, the bulk of investments are focused on the most liquid markets, including Nigeria, Kenya and South Africa, and the relatively few African stocks quoted on US, UK and Canadian exchanges.
Geneva and London-based hedge fund Scipion Capital has developed an approach based on the same principle of diversification, which chief investment officer Nicolas Clavel says is ideal for “investors who have no experience of Africa”. Its African Opportunities Fund, launched last July, claims to be the continent’s only tracker fund.
It invests in stocks picked from African Investor’s Ai40 index, which meet its criteria on liquidity, size and daily trading volumes. The companies that satisfy these requirements have a total market capitalization of around $400 billion, amounting to about 40% of the continent’s total market value. The fund has invested in about half the available stocks.“I am a strong believer in sticking to large cap stocks,” says Clavel, who points out that of the approximately $1 trillion invested in global emerging markets, just $30 billion is in Africa – most of it in South Africa. “The rest of the continent is underweighted in almost all portfolios.”
Clavel believes that rather than overloading shallow markets, the availability of capital will increase opportunities and grow the size of local stock markets. “If a lot of people come in, it will encourage businesses to raise money on the equity markets. Right now companies still think of borrowing money instead of doing a rights issue,” he says. —JH