May 27, 2011

Investment News Highlights Africa’s Remarkable Returns and Low Volatility

A pair of recent articles in Investment News’ magazine have again highlighted the opportunity in Africa for investors seeking strong returns with low volatility. In the first, found here (free subscription required to view) the author notes that investors might be surprised by the “remarkable returns” and “low volatility” that Africa has seen over the past decade, and points out that:


“Over the 10-year period through December, the Africa Composite Index produced an average annual return of 17.3%, with volatility as measured by standard deviation of 11.9%.


By comparison, the MSCI Emerging Markets Index over the same period had an annualized return of 13.2% with a standard deviation of 24.7%.


The S&P 500 over the same period had a negative annualized return of 0.5%, with a standard deviation of 16.4%.”


The article also highlights opportunities in commodities, noting that “the continent contains 13% of the world’s oil reserves, 50% of proven gold reserves, 50% of iron ore reserves, 60% of cobalt, and 90% of platinum group reserves.” Consumer growth and infrastructure are also mentioned as strong investment opportunities.


The second article (found here) notes that “although all the usual preconditions and warning related to risk apply here, there is no denying the market’s allure” It also points out that:


“Some market analysts already have started lumping Africa in with the emerging BRIC economies of Brazil, Russia, India, and China. In fact, Goldman Sachs Asset Management chairman Jim O’Neil, who is credited with coining the BRIC term, is among those who think that African nations could surpass Brazil and Russia as the next hot emerging markets.”


In both articles the opportunity for investing in Africa is very favorably presented, with one even speculating that Africa could be the next Asia for investors.


In the view of Nile Capital Management, a key message in each of Investment News’ articles is what a surprise Africa may seem to be. At Nile Capital Management we have been analyzing Africa’s growth, and have been aware of the opportunity for investors for some time. However, much of the investment community is still learning about how compelling investment in Africa could be. This to us makes the opportunity for investing in Africa even stronger, as increasing awareness is likely to drive up valuations. This will be beneficial for investors who are involved on the continent already.


In fact, Investment News points out that:


“Part of the valuation appeal at the individual company level is due to the limited coverage of African stocks by Wall Street…Because Africa is so poorly covered in the media, most investors probably would be surprised to learn that there are more than 100 companies on the continent whose annual revenues exceed $1 billion. What’s more, Africa is home to nine of the world’s 15 fastest-growing countries.”


However, as investors come to understand the opportunity for investing in Africa, it will be important for them to select the most compelling stories across the continent. For example, although there are over 2,000 equities listed across Africa’s 24 public markets, Nile Capital seeks to invest in somewhere between thirty and forty of them at any time.


Nile Capital Management’s research team looks across the continent for investments which trade at a compelling values and have strong long-term growth prospects. This active selection process means we seek to invest in what we deem to be the ‘best’ opportunities on the continent. We therefore believe that the selection of what we see as the best opportunities in Africa will help investors share in Africa’s growth while managing risk.


As interest in investing in Africa continues to gain momentum, Nile hopes to remain poised to assist long term investors look for returns on the continent. Articles such as these simply help reinforce what we believe: there are substantial returns to be made in Africa, and we seek to participate in the opportunity.

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or info@nilecapital.com.

We know Africa - from Cairo to Capetown.

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