By Mark Hollingsworth
The very successful investor is the one that looks for new opportunities before the crowd follows. One such opportunity that fits the bill is Africa, even though there are very limited opportunities to buy investment funds in this country. This is a great pity as I think the region has all the potential to be a major emerging market in the years to come. Did you know that Africa has 60 per cent of the world’s proven resources of diamonds, 40 per cent of the world’s phosphate, 30 per cent of the world’s cobalt and 7 per cent of the world’s oil and gas reserves ? South Africa even has 88 per cent of the world’s resources of platinum (source : Deutsche Bank).
In the first quarter of 2008, the market value weighted average of all of Africa’s indexes was up 3 per cent – some way ahead of the 9 per cent decrease in the MSCI World index and 12 per cent loss from the FTSE 100 index. Economic growth for Africa is forecasted to increase from 6.7 per cent during 2007 to 7.5 per cent in 2008. (Source: Standard Bank Africa)
Foreign investors such as China already see the opportunities as their demand for commodities has turned their attention to Africa. Oil and commodity producers especially, have benefited substantially from China’s demand for raw materials. This investment has helped to fund improvements in infrastructure, which in turn have fuelled the economies and stock markets in the region. In fact, Angola overtook Saudi Arabia as the top supplier of crude oil to China exporting 8.5 million tones of crude compared to Saudi Arabia’s 8.2 million tones in the first quarter of this year.
Even India is courting African states and rolled out its welcome mat in the capital of Delhi earlier this month hosting the leaders of 14 African countries at the India-Africa summit. Indian exports to Africa have tripled from $2 Billion to $6 Billion during 2000-2005 and imports jumped from $3 Billion to $4 Billion during this period.
A word of caution though as the risks are greater than average. The risk of political instability clearly remains in some markets. It is also important to look at countries individually e.g. how a drought in Morocco could have severe macro-economic effects. Most African markets are still relatively illiquid so this must be borne in mind. For a 5-10 percentage of one’s portfolio though, I believe Africa should not be ignored and the lack of correlation to western markets offers great appeal and potential.
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