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Roelof Horne of Investec Asset Managers answers your questions on the outlook for African stock markets, where the opportunities and risks are and what countries and sectors offer the most potential, in a live online Q&A.
Post a question now to firstname.lastname@example.org or use the online submissions form below. Answers will appear below today from 2.30pm GMT.
I’ve just seen the film The Last King of Scotland on Idi Amin’s rule in Uganda in the 1970s. How do you cope with issues like the rule of law and political stability as an investor?
Stephen Cowley, Edinburgh, Scotland
Roelof Horne: Political stability remains an issue but is largely mitigated by the fact that African politics is often contained within the relevant country whilst we are invested across the continent. Each country needs to be monitored and assessed separately.
What is however very clear, is that the political climate of Africa is improving significantly. Recent elections in Zambia and the DRC are a case in point. Nigeria, another success story, are holding their third set of consecutive elections in March of this year.
The trick will be to invest in the countries where things are improving and avoid the ones where things are getting worse. Will we get it right every time? Probably not. But keeping close to the action should give us a very good chance of success.
I’d like to know which countries offer the best risk/return opportunity over a period of two to three years. What are the biggest risks in investing in these countries and what are the best instruments to invest (excluding private equity, are these ETF, tracker, single stocks, other?).
Marcello Zanardo, London
Roelof Horne: Tunisia, Egypt, Nigeria.
Their biggest risk is political upheaval, although in the period mentioned only Nigeria would be a potential candidate. For Nigeria, a significant drop in the oil price could also slow down the fantastic economic growth it is currently experiencing in the non-oil economy.
Best investment in my opinion is single stocks. Some of these markets can be overvalued in total (skewed by expensive large-cap companies)while still offering excellent opportunities for stock-pickers.
Liquidity is always cited as the biggest problem while investing on African stock markets. What is your view on this having 2006 in perspective? Are South African pension funds keen to invest in African equities outside South Africa? What is their view on the Investec Africa Fund?
Evariste Katanga, South Africa
Roelof Horne: Some markets are more illiquid than others. Although often cited as a ‘problem’, it also creates opportunities. Low liquidity often means that mispricings are not arbitraged out quickly and provides the long term investor with good buying or selling opportunities, even if one has to wait for lines of stock.
The South African stock market has had a good run. Is your fund diversified in case the China/Resources boom collapses? Do you see ongoing opportunity in the other African countries?
G Drust, Devon, UK
Roelof Horne: Yes - our fund is diversified and we are not leveraged to the China or resources boom; but rather to the structural economic and political improvement that we are seeing in many countries across the African continent.
Each country should be assessed separately. Some of the countries with the best stock exchange performance over the last three years have no oil or minerals to speak of (Morocco, Egypt, Kenya). We definitely see ongoing opportunity - Africa is becoming a growth continent!
What advantage do you see portfolio managers having by including African stock/funds into their portfolio? What diversification benefits are possible and at what level of risk?
David Carr, London
Roelof Horne: You’ve hit the nail on the head - The obvious benefit is diversification as a result of the African markets being uncorrelated to both developed and emerging markets. The aggregate level of risk is consequently reduced.
How do you undertake diligence and get comfortable with making an investment in a region notorious for a lack of information or accountability and corruption? How do you manage your investments without being on the ground?
A Boulsien, UK
Roelof Horne: Given that we are based in Africa, we are as on the ground as it gets without having an office in each country. We visit the companies we invest in also speak to management telephonically. As electronic information is hard to come by, knowledge is the great differentiator in investing in these markets. It will be the key to our success or failure as investors.
I am retired and wish to build an Africa fund investment for my grandchildren. This would be a long-term project. Kindly advise pros and cons.
G Amand, France
Roelof Horne: Directly investing in Africa’s stock exchanges would be difficult for the retail investor, with information often scarce. Our advice would be to get a good stockbroker in each country, and use them intelligently. Unfortunately the minimum investment size for our Africa fund is $1m.
Where in Africa you expect to experience the strongest growth in the next year and which sectors are likely to experience the highest levels of growth?
Toby Simes, London
Roelof Horne: Angola is currently the country with the strongest GDP growth rate in Africa. They have just launched their stock exchange, so watch that spot! Africa is comprised of very different markets, with different drivers - it would be wrong to single out ‘sectors’ across the continent.
We have seen strong growth in the banking and cement sectors in Nigeria which are likely to be sustained in the medium term. Egypt is another country with strong export and domestic growth, and many smart businessmen who know how to make use of these opportunities and the stock market to generate wealth.
Do you think I can get good returns from investing in one of Africa’s
Amir Muhammed, Canada
Roelof Horne: Yes - but you could get a better risk weighted reward from investing in a basket of lowly correlated markets.
What do you think about the West African markets and which sectors look most and least attractive?
Jonathan Morton, New York
Roelof Horne: These markets are very different and have to be viewed separately. Even within different sectors, one would find a variety of under and overvalued counters.
For an individual investor, Ghana could be a good long-term market, although it is somewhat illiquid for institutions. Nigeria is the most exciting, but beware of significant overvaluation in some counters.
Ivory Coast covers the whole of Francophone Africa. Counters with businesses in Ivory Coast itself have suffered from the civil war and lingering tension.
What do consider to be the greatest risk facing investors who are looking to Africa as an emerging market? Are there any other substantial risks? And how can these risks be reduced?
Adesewa Akinsanya, London
Roelof Horne: Africa fortunately consists of many countries, all of which have different drivers of their markets. In some countries the major risk is political. In others it is economic reliance on one commodity. However, the markets are uncorrelated to a large extent. So diversification is key as a risk mitigator.
What are the top five opportunities for investing in Nigeria for an investor who is based in the UK? What do you think about the recent Transcorp investment opportunity?
Ekundayo Olusegun, London, UK
Roelof Horne: The banking and cement sectors have been the most exciting opportunities on the Nigerian Stock exchange over the past 12 months, and we are expecting continued growth in these sectors. Watch out for overvaluation.
Transcorp is a good idea - a bunch of well-connected individuals using their influence and knowledge to gain access to investments. We however don’t know whether they will be good investors. Will they overpay? Can they run businesses? Or will it simply be an investment trust? We will have to see.
How can your African funds be accessed? They seem to be very well hidden in various sites and listings including your own!
Ian Meredith, South Wales, UK
Roelof Horne: Our funds are mainly aimed at institutional investors. The minimum “retail” investment into our pooled fund is $1m. I guess that is why you don’t see a lot of “in-your-face” marketing.
What is the single biggest difference between the African markets as compared to the other emerging markets like China and Brazil and what are the main factors that investors should look out for before investing in these markets?
SK Tan, Hong Kong
Roelof Horne: The single biggest difference is that Africa has relatively few foreign portfolio investors. Only three countries are in the MSCI EM index - South Africa, Morocco and Egypt.
The impact of that is that the other African markets are uncorrelated to the MSCI and to each other. So we would expect any contagion effect in emerging markets to by and large bypass Africa.
From the Cape to Cairo, investor interest in Africa is rising. With the exception of South Africa, the continent was often considered off the radar screen for foreign portfolio investors, seeing only a trickle of investment inflows. But as the political and economic climate improves, the continent’s capital markets are attracting more attention. This partly reflects the performance of the region’s markets. Strong performers have included Morocco (up 87 per cent in dollar terms in 2006), Tunisia (up 46 per cent), Kenya (up 45 per cent), Nigeria (up 39 per cent) and South Africa (up 23.85 per cent).
But Roelof Horne of Investec Asset Managers believes the opportunites in Africa have been barely been tapped. He is one of the very few pan-African fund managers, investing across some 20 markets across the continent. The Investec Africa Fund he co-manages with Chris Derksen is tiny with some $20m in assets but it has already risen by 60 per cent from launch in November 2005 to the end of September in rand terms.
“Africa is undergoing a revival, both politically and economically. Yet its stock market risk premiums still reflect too much risk,” he said.
Mr Horne believes African markets offer world class companies with high returns on equity, faster than average profit increases driven by fast-growing demand for goods and services. He adds that African markets offer diversification benefits with a low correlation to developed and other emerging markets.
Here is your chance to ask Mr Horne his views on the outlook for African stock markets - where the opportunities are, what countries and sectors offer the most potential and where the risks.
Roelof Horne is manager of the Investec Africa Fund at Investec Asset Management. Roelof joined Investec Asset Management in February 1996 and was involved in equity analysis and portfolio management before becoming head of research and the financial services sector. Roelof is a director of the company.
Prior to Investec Asset Management, Roelof was chief financial officer of First Derivatives. He began his career at Deloitte & Touche, where he specialized in financial institutions, and was made partner in 1993. Roelof qualified as a Chartered Accountant in 1987 and was placed in the top ten in the final qualification exam.