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Investors turn to Africa as the final frontier
by James Smith on Dec 28, 2012 at 07:00
In Magna Africa, he favours South Africa, both for its own fundamentals and as a way of playing the continent as a whole. Nigeria is another popular area, with Dua highlighting ongoing developments there despite the largely negative portrayal in the West.
Earlier this year for example, the government announced an end to fuel subsidies, which meant Nigerians paying market price for their petrol, from 65 to 140 naira (26p-56p) per litre. This led to protests and strikes for a period, before an eventual compromise level of 97 naira, with a promise of fully unsubsidised prices in due course.
‘Western commentators focused on the government losing control but this ignores the brave measures they are taking,’ says the manager. ‘Despite being a huge oil producer, the country – through a lack of foresight – is a net importer of refined petroleum and the subsidy costs $8 billion a year, more than the amount spent on healthcare, education and housing combined. This is unsustainable and also widely abused by petroleum traders, who buy subsidised fuel to sell outside Nigeria.
‘Ending the subsidy is necessary and we applaud president Goodluck Jonathan for taking unpopular short-term measures for longer-term good.’
Elsewhere, Fidelity is overweight Europe Middle East and Africa (EMEA) in its Emerging Markets fund, with African exposure key.
Mark Livingston, an investment director on the EM team, says the team’s quality focus leads them to countries like South Africa, where companies have the best corporate governance in the emerging world.
Looking at themes in the portfolio, the consumer is key, both in Africa and China.
Livingston notes opportunities in countries such as Nigeria, which is benefiting from powerful shifts in consumerism, albeit from a low base. GDP per capital has quadrupled since 2000, from $400 to $1,600, and the population has risen from 120 million to 165 million in the same period, creating huge demand for lower-end goods such as basic food and drink.
‘We like companies such as South African supermarket business Shoprite, which is taking advantage of its geography to extend across the rest of the continent,’ says Livingston.
‘The issue is very much supply rather than demand-led in these countries and once you have a distribution network set up through supermarkets, this is an extremely profitable business. Shoprite is not a large active position in the fund now as the valuation has caught up with reality but the underlying consumer trend is clear.’
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From Nigeria to Pakistan and from Kenya to Kuwait, frontier markets are catching investors' attention as never before.