With an M&A run rate of $54 billion from Marakesh to Johannesburg, African companies are having a great year. If you are looking for double-digit earnings growth at single-digit valuations, Africa is one of the last remaining places on Earth that you will be able to find it.
Local companies benefit from strong consumer demand and investors benefit from high dividend yields. In fact, African mutual funds and ETFs have seen investors pump a record $610 million into their portfolios so far this year.
But those flows can conceal a relative lack of variety in the individual African stocks that U.S. investors can buy. There are only 88 ADRs to cover the entire African continent -- one from Zambia, three from Egypt and the rest from South Africa. South Africa is of course a very exciting economy, contributing 17% of all of Africa's total GDP, but getting exposure to the other 83% of the continent is difficult.
You can simply buy into the Africa ETF AFK, which is up 17.8% so far this year.
However, even AFK has trouble investing its entire portfolio on the continent itself. About 30% of the fund's assets are in South Africa -- companies like AngloGold AU, and Old Mutual ODMTY, -- and another 19% are in Egypt, largely in ORSTF and ORSDF.
Another 30% comes from Nigeria, Morocco and Kenya, where retail exposure is very hard to come by. But the remaining 21% represents "offshore" exposure to African markets -- global companies that do business on the continent, but are not actually African stocks.