Issue: June 2005
Edutorials
Investec

INTERNATIONAL INVESTING:CHARITY BEGINS AT HOME!

Michael Streatfield, strategist at Investec Asset Management Michael Streatfield, strategist at Investec Asset Management, suggests that African investment offers exciting opportunities for portfolio diversification.

IS THE AFRICAN CONTINENT THE BEDROCK OF YOUR INTERNATIONAL PORTFOLIO?
SHOULD IT BE?

Last year, five of the world’s 10 best-performing stock markets were African. Positive changes sweeping the continent are increasingly being recognised by the global investors. South African retirement-fund trustees are particularly well positioned to appreciate the dynamics. They need to know what these changes mean for their investment portfolios.

INVESTMENT CASE

The past decade has seen markets rapidly develop across Africa. Established stock exchanges now operate in over 18 countries as far-flung as Algeria, Cote d'Ivoire, Uganda and Malawi. Most African capital markets are still in the ‘frontier’ stage of development – young, small and illiquid even by emerging market standards. But there are also markets with significant development prospects in terms of depth (listings), breadth (size and trading volumes), and infrastructure.

Interest from the developed world in Africa is increasing. G8 leaders have prioritised debt write-off. Major western countries are preparing for a new era of economic engagement. And the NEPAD initiative is forging sustainable solutions.

Debt write-off will substantially improve Africa’s capital account and underpin many of its currencies. Surprisingly, African currencies correlate lowly (ie, do not move in line with one another). So funds spreading investments through Africa will derive currency diversification.

Historical returns from African stock markets have been remarkably good. Africa has strong potential because it is a vibrant, resource-rich continent with a youthful population base whose skills and education levels are developing apace.

WHAT TRUSTEES CAN DO

They need to think about Africa in their investment strategies and ask their South African managers what they can do outside our South African borders.

Five percent of South African retirement-fund portfolios can now be invested into Africa through an appropriate listed pooling vehicle beyond the allowable 15 percent international exposure. This additional five percent provides a unique opportunity for trustees to participate in development of the continent and bring greater diversification to their portfolios outside South Africa.

Sir Sam Jonah, president of Anglogold Ashanti, was asked at the recent Investec Asset Management investment conference what we as South Africans could do to help promote Africa. He replied simply: "Invest in Africa, and talk positively about our continent."

In future TT editions, we’ll explore the opportunities in greater detail.

FIVE REASONS WHY AFRICA SIGNALS OPPORTUNITY:

  • Feeding the Dragon. China’s growth depends on resources, many necessarily from Africa;
  • Frontier market. That African stock markets are developing provides superb opportunities for early investors. Telecoms, retail banking, beverages and construction show promise;
  • International interest. Debt relief and foreign aid will underpin growth and improve credit ratings;
  • Global markets are expensive. By contrast, African markets offer higher earnings growth and stronger dividend yields;
  • Dissipating risk. During the past five years, more than two-thirds of sub-Saharan Africa countries have held multi-party elections and improved their fiscal discipline.