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Money managers under the microscope

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November 12, 2010

Sick of hearing about China and Brazil? Just a little bit worried about all the money flooding into emerging market funds this year? Sceptical that South Korea can even be classed as an emerging market anymore? Why not try Africa?

If there was one thing that speakers at this week’s CFA Institute European Investment Conference all agreed on it was that Africa could be the next big thing for the daring investor.

Both leading economist Nouriel Roubini and Lars Christensen, head of emerging markets research at Danske Bank, believe Africa offers a viable alternative to crowded emerging markets, with economic growth likely to be driven by industrialisation and political and market reforms.

Foreign direct investment has picked up since 2000 with the Chinese building roads, ports and railways so that they can extract sought-after commodities from the interior.

Christensen cited Kenya, Mozambique, Angola and Tanzania as some of the most interesting opportunities, as these are introducing market reforms and have enjoyed growth throughout the financial crisis. “Uganda is also a good story. We are seeing the development of a financial sector in some of these markets.”

He added that Botswana is a fast growing economy which is investment grade and politically stable but one that has been overlooked because it is quite small.

Most investors have traditionally steered clear of Africa, alarmed by political instability but Daniel Broby, chief investment officer of frontier markets specialist Silk Invest, said that military coups were now the exception rather than the rule. “People who left to get a better education are now returning with MBAs from top universities, running companies and entering government to pursue change,” he said.

He pointed to Ghana where the incoming president had been elected on a slender majority of 40,000 but the changeover of power had taken place in an orderly way. “And in Nigeria we are seeing the elections being fought on anti-corruption platforms,” he said.

Broby and Christensen were concerned about markets such as Brazil, which has been one of the major beneficiaries of emerging market flows, with a glut of Brazil equity funds launched by managers this year. “There’s been a lot of money flowing into these countries,” said Broby. ”Brazil, China and India rode up very high and I would suggest the flow of funds have gotten a little ahead of themselves.”

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