Tuesday, August 4, 2009

Africa attracts $1-billion in fund flows

August 3, 2009

Africa has attracted almost $1 billion of net fund inflows this year, a reverse of the panic sell-off that hit the continent's nascent markets at the end of 2008 and early 2009, according to fund trackers EPFR Global.

So far this year, investors have put $990 million into Africa, and last week funds in the so-called 'frontier market' region attracted net inflows for the ninth week out of the previous 12.

"If the current trends hold, the $1 billion mark should be crossed this week," Cameron Brandt, Washington-based EPFR's global markets analyst, said.

The flows are further evidence of the return among some global investors of an appetite for the higher risks and higher yields of developing markets after a flight to the safety of cash and developed country debt towards the end of 2008.

They also underscore the long-term logic of investment in a continent that is home to as much as a third of the world's natural mineral resources, and which is slowly but surely getting its game together.

The main equity index in South Africa, far and away the continent's biggest bourse, is up 38 percent from a Nov. 20 low, although the effect on the rest of the sub-Saharan region has been more muted.

Nigeria, Africa's second largest market which went from boom to bust in 2008 with the ending of a banking share bubble, has risen 18 percent in the last three months, but remains down nearly 20 percent on the year and is less than 40 percent of its value in March 2008.

Kenya tells a similar story, with Nairobi's main index posting a 38 percent rise from early March lows that has nevertheless left it at only just over half an early 2007 peak.

Analysts and fund managers said the turbulence of the last 12 months was unlikely to wipe out the gains made in the last five years on the back of a commodity price boom, debt forgiveness, a flood of direct foreign investment and steadily improving levels of governance.

"Despite the impact of the global crisis and periodic bouts of political turmoil, the theme of an African economic renaissance is not likely to vanish," Deutsche Bank said last week in a research note.

Underpinning much of the investment expectations are forecasts for African countries to post some of the strongest growth in the world this year, with the IMF seeing the likes of Uganda and Malawi expanding at more than 6 percent.

South Africa is stuck in its first recession in 17 years, but most economists expect it to expand by around 2 percent in 2010, helped in part by its hosting of the soccer World Cup.

"We're starting to see some very significant inflows right now," said John Mackie, head of Africa funds at StanLib, citing particular interest from the Middle East and African pension funds looking to park money elsewhere on the continent.

Source: Reuters