The Arab Spring and global risk aversion has left shares in African companies outside South Africa hugely undervalued, representing a buying opportunity as the continent grows quickly, a fund manager at Johannesburg-based African Alliance said.
“The North Africa situation has had a negative effect … but Africa is not just Egypt and Morocco,” said Nicholas Piquito, head of pan-African funds at African Alliance Asset Management, which has $1 billion under management, told Reuters.
“There is so much happening on the ground that is not being seen by international investors,” Piquito said. “We believe the upside is very significant. The market continues to be underappreciated globally.”
In Zurich to meet investors, Piquito said African stocks excluding South Africa had fallen 10 percent since a trough in global share markets in March 2009, while global emerging markets – including South Africa – had risen about 100 percent.
“This is astounding, especially given that the operational efficiency of these companies have improved,” he said. “Business has continued to grow but prices have gone nowhere.”
Piquito said Africa should be able to achieve annual GDP growth of 5 percent for the next five years, with resource-rich countries such as Nigeria, Angola and Ghana on track to expand much faster.
“The other darlings of the emerging market universe are coming off, while we think the African continent can continue to grow quite strongly,” he said. “Africa doesn’t need to do anything spectacular to continue growing at 5 percent. It just needs to iron inefficiencies out of the system.”
One example Piquito highlighted was the banking sector in Nigeria, where only 20 million people have bank accounts compared with 80 million who have cell phones.
“There is massive underpenetration across the board,” he said. “There is a lot of potential upside.”
Piquito’s Africa Pioneer Fund, with $22 million under management, is overweight on Nigeria, where its investments make up 28 percent of the fund and where its largest exposure is to banks such as Access Bank.
After a crisis in 2010 and 2011, Piquito said Nigeria’s banks had gone a long way to cleaning up non-performing assets. “These banks are sitting with balance sheets that are the envy of the developed world,” he said.
Meanwhile, the fund is underweight North Africa due to political uncertainty in Egypt and relatively lofty valuations in Morocco.
“At a point in time, Egypt might be a very compelling buy. It’s just a bit early,” said Piquito.
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