Wall Street Journal
By Reshma Kapadia
In my Barron’s column this week, I take a closer look at the recent interest in Africa, especially Nigeria. TheFinancial Times ran a piece over the weekend oninvestors buying land as a way to play the opportunity.
While the region’s markets have had a nice run this year, it comes after a ho-hum post-crisis performance and a difficult 2011. As a result, managers like Andrew Brudenell of the HSBC Frontier Market Fund(HSFAX), think valuations in Africa are among the more attractive in the frontier world. Brudenell, who has about 20% of his portfolio in Sub-Saharan Africa, says the opportunity there is still in the very early stages.
But some parts of Africa are feeling the sting of the global slowdown, especially European tourist-heavy markets like Morocco. South Africa’s platinum, iron ore and gold industry is also affected by reduced Chinese demand —not to mention the recent bout of unrest.
On the other hand, much of the consumer demand in hot markets like Nigeria is largely insulated, managers say. And the growth in sub-Saharan Africa is starting from such a low base that it should continue to grow at a rapid pace, says Nile Pan Africa (NAFIX) fund manager Larry Seruma.
Egypt –the other big market in Africa–is being approached cautiously by managers.
Seruma says he wants to see how the situation shakes out.
HSBC’s Brudenell has been increasing exposure in Egypt this year, noting that the country has great companies. The challenge, of course, is figuring out if things are moving in the right direction. “I think expectations got ahead of themselves last year,” Brudenell says. But the country’s young demographics and trade link between the east and west is undeniably attractive. Plus, the process of the new government offering investors reassurance continues.
