February 25, 2011

Nile Capital's Larry Seruma on Squawk on the Street

This morning, Nile Capital’s own Larry Seruma was featured on CNBC’s “Squawk on the Street,” where he debated the opportunity of investing in the Egyptian market (watch the interview here). Of course, it’s never good to be the person pitching the opportunity in Egypt when the headline reads “Crazy to Invest in the Middle East?” and the video clips show footage of angry men with guns. However, we confess that we are not surprised at the perception of turmoil in the Middle East as a risky investment opportunity. We also confess that our favorable opinion of the Egyptian market remains unchanged. Despite the headline, we agree with a good deal of what was said. First, there are going to be higher risks in Egypt (and the Middle East) in the short term. Without the benefit of foresight, it is relatively safe to say that when the Egyptian market opens, it will open to lower bids as foreign investors may sell Egyptian equities to rebalance risk in their portfolio and local investors sell to meet margin calls. In addition, we also agree that now would not be the time for a retail investor to look for quick profits in the Egyptian market. Time and again it has been shown that market timers are significantly more likely to get their predictions wrong than they are to get them right, and given that the average retail investor could not name a single company which trades in Egypt, jumping in now is not a good idea. We especially agree that for a short term investment, Egypt is not the place. Aside from increased volatility, Frontier and Emerging Markets are often riskier because of the possibility of political unrest. This does not make them poor investments, but rather an opportunity for the long term. The situation in Egypt is opaque - there will be winners and losers over the next few weeks whose performance will not depend on fundamentals, but on emotion. So yes, as with any investment if you are looking to make fast money by riding volatilty, we can only wish you luck. That being said, we are still firm believers in opportunities for the Egyptian market, for the long term investor. As we mentioned in a previous post (link), the Egyptian economy has a growing middle class which continues to demand more and better goods and services, and we believe now is an excellent time to invest in firms that are well-positioned to capitalize on that opportunity. Political unrest aside, when new bank account openings are growing by double digits every year or construction can hardly keep up with population growth, there is a place for investors to do well. It is all a matter of knowing where to look, and being willing to remain patient. For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or info@nilecapital.com

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