According to a white paper released recently by Nile Capital Management, LLC, Africa’s financial markets and expanding public companies remain unknown and under-invested by foreigners, but several of the continents emerging and frontier markets are attractive and should be considered in an investor’s asset allocation strategy.
Investing in African markets can yield high returns for a dozen reasons, said Larry Seruma, CEO and managing principal of Nile Capital Management. Africa’s economic growth is experiencing a powerful upward curve that will continue for the next several decades, making it a “ground floor opportunity” for investors. In the last decade the African Composite Index consisting of eight countries returned an annualized 13.83%.
The low correlation potential in Africa is rich because only a few of its stock markets or public companies are included in popular emerging markets indexes or index funds. The portfolio exposures of large institution and hedge funds to the continent remain relatively low. This means Africa hasn’t experienced liquidity driven inflows and outflows of capital like other emerging markets. African markets aren’t driven by the tides of systematic global market risk.
Africa’s strong economic and market growth can be attributed to countries enacting macro economic reforms such as credit regulation, labor market regulation, business regulation, liberalized markets and free trade policies, Seruma explained. The country is also urbanizing at a faster rate. Its GDP increase per capita came from a growing workforce, which is projected to increase from 500 million to 1.1 billion.
Numerous African countries are generating strong cash flows, earnings and profits. Stock markets and public companies represent approximately $1 trillion in market capitalization. Of 53 African countries, 23 have active stock markets with a total of 1,500 companies listed. More than 100 of these companies have revenues greater than $1 billion. Africa’s larger well known international brands include South African Breweries, Anglo Platinum and Old Mutual. These three companies collectively have about $47 billion in sales.