Investors find growth in fund returns on the African plains

FOLLOWING the unrest that has dogged the Middle East and north Africa (MENA) regions for a large part of this year, investors may be asking themselves why they should be looking at these politically unstable regions rather than simply putting their money into the ever growing number of Bric funds on offer. But with African countries making up five of the world’s ten fastest growing economies last year, investors should look beyond short-term volatility and instead view the potential for long-term returns.

The revolutions in the MENA, though they have resulted in casualties, show that despotic regimes are no longer tolerated in these fast developing countries. The economic expansion in this region has largely been constrained by government control and so, after this period of turbulence, investors have reason to be hopeful that growth can become even stronger.

In the view of Tommaso Bonanata, fund manager of the Julius Baer Northern Africa Fund for Swiss & Global Asset Management, “the revolutions make it more important for investors to get the balance of exposure correct. The African region should be considered as a complementary exposure to the broader emerging markets universe, and not as a core exposure. Africa should also be considered as a long-term investment rather than a quick profit making region.”

According to Richard Titherington, chief investment officer of emerging markets equities at JP Morgan Asset Management, “emerging market countries will benefit from sustainable long-term trends in the coming years and infrastructure will play a significant part in future growth. Urbanisation is driving increased productivity and prosperity across emerging markets, while the cement and steel sectors have seen a high volume of growth of late and will continue to face a greater demand from these countries.”

Nigeria is tipped to be the strongest performing of the west African nations for the near future. The marvellously monikered Goodluck Jonathon took victory in the recent presidential elections, the third since the end of military rule in 1999. Despite the turmoil that has surrounded the aftermath of these elections, Sven Richter, head of frontier markets for Renaissance Capital is bullish about Nigeria’s potential for long term growth: “The country benefits from its oil reserves, but infrastructure is the sector that has the greatest potential for growth. With the very low correlation between African markets and global activity, it would be short sighted not to include African stocks in your portfolio.”