Cash has flowed into African equity funds in 51 of the past 52 weeks, according to a report on newsagency Reuters, citing Washington-based EPFR Global, which tracks funds flows. The report says a net $660 million flowed into African regional funds over the last 12 months — “not vast sums on the global scale but far more than Africa has ever attracted in the past”.
Reuters cites EPFR global markets analyst Cameron Brandt as saying: “Through the 7 months of this year, the flows into Africa regional funds are already pretty close to 4 times the previous best year, which was 2007.. The sustained levels of flows have been pretty compelling and impressive because there have certainly been some bumps in the road this year.”
The only week when net inflows were not positive was in mid-July and amounted to $750,000 of withdrawals.
The steady inflow of foreign cash has helped many African bourses post healthy recoveries from the lows of early 2009 after the global slowdown. Kenya’s main stock index (NSE 20) is up 42% over the last 12 months and 37% year-to-date, while Nigeria’s (NGSE30) has risen 18% this year and Uganda’s index (ALSI) is up 34% since a year ago.
EPFR includes North Africa, although many investors divide the continent into sub-Saharan Africa and to include the 5 North African countries with the Middle East. Some of the Africa funds surveyed include South Africa, Brandt said, although a cap on exposure to the continent’s biggest and most sophisticated economy means the overall figures still give a clear picture of interest in “frontier Africa”.
For most foreign portfolio investors, frontier Africa is primarily Nigeria and Kenya but it is also including more illiquid markets such as Uganda, Ghana, Zambia, Botswana and Zimbabwe, in all of which promising mineral deposits look set to underpin strong economic growth. It also gives managers of the larger Africa funds a challenge to finding a home for new money in a relatively limited investment universe dominated by banks and telecommunications firms in Nigeria and Kenya.
Foreign interest in the poorest continent has also moved on to domestic sovereign debt in Nigeria, Kenya, Uganda, Ghana and Zambia. Some African sovereign bonds, including those denominated in hard currency, offer large yields compared to developed-market bonds.
Reuters quotes Brandt as saying: “We’ve really seen a broad re-rating of emerging markets in a very positive way, to the point where emerging market debt has almost been a flight to safety.”