The effect of the global financial crisis on Africa should be relatively short term says Standard Bank Emerging Markets strategist Michael Hugman, according to a report cited by stockbroker Securities Africa (www.securitiesafrica.com). Mr Hugman apparently told emerging market specialists who gathered recently at Thomson Reuters’ London headquarters for panel discussions on African investment that investors are being attracted back into higher-yielding, growing economies because of low returns on debt in the developed world. He said member countries of the Organization for Economic Cooperation and Development are offering returns of little over 1%.
Barriers to investment in Africa remain, including corruption, bureaucracy and uncertainties over debt restructuring, but overall the climate is improving. Many international investors pulled out as a result of the crisis, and there has been a lack of opportunity and will to return.
Although capital was raised through international bonds in 2009, some international issues were postponed. Kenya’s Central Bank Governor Njuguna Ndung’u reportedly told the conference Kenya will launch its planned debut Eurobond in 2010.
Delegates from the International Monetary Fund reportedly said they were “cautiously optimistic” on Africa’s growth outlook. Analysts warned that Africa is not likely to return to the boom days of 2007, when investment was flocking in.
South Africa’s Business Day newspaper cites Francois van der Merwe, portfolio manager at Novare Investments, as saying that emerging markets including Africa were expected to play a much more prominent role within global portfolios. The opportunities include equities, sovereign debt, domestic debt, cash as well as currency investments.
South Africa has attracted its share and in the year to 18 December total foreign investment was R74.2 billion (US$10 bln) compared to an outflow of R55.4 bln the previous year. Head of equity trading on the JSE Ltd, Leanne Parsons, was quoted as saying the year-on-year increase in equity trades on the local bourse was due “partly to increased foreign interest in SA as an investment destination “.
Van der Merwe is reported as saying that emerging markets have recovered swiftly from the crisis and have attracted global portfolio flows as they outperformed developed markets.
“Emerging market equities have provided a great alternative over the course of this year, but with global asset managers already overweight in this asset class, the potential for the same type of returns over the shorter term may be limited,” he said.