World Market Pulse
submits:
In this era of global uncertainty, investors are wary of
investing in alien markets. A lack of fundamental analysis of the
potential good upcoming markets also acts as a deterrent for
investors. Some markets follow the global patterns and some just
swing with an entirely different wavelength. One such market that
historically has never followed the global market and its patterns
is the African continent. The African people and more importantly
the African markets have their own dynamic life and irrespective of
current trading volumes, liquidity or fundamentals, African markets
have mostly walked without much global baggage. Considering the
fact that most African regions are bracing themselves to kick-start
their economic progress, a long-term growth potential is the best
possible way to look at the African markets.
Gone are the days when Africa was considered to be a poor
continent rich only in natural resources but where poor people
fought for survival amid disease and poverty. Africa, the
birthplace of human civilization, is slowly but surely getting its
rightful place in the history of mankind. African countries are not
simply spectators to the economic rise of China and India but are a
party to it. Africa is not only attracting investors from China and
India, but African ETFs have also shown substantial gains in the
recent times. There is no doubt that some African nations offer a
tremendous growth opportunity for the investors, especially for
those looking at emerging economies outside the BRIC nations. Of
course there are people who are skeptical of the kind of growth
African nations can achieve, but as South Africa showed with the
successful completion of the FIFA World Cup Football 2010, the
continent is ready to attain its lost glory.
The largest economy in Africa is the Republic of South Africa
with a 77% total market cap of the MSCI EFM Africa index
components. Egypt, Nigeria and Morocco make up 5%-10% each, and
smaller investments include Kenya, Mauritius and Tunisia. Together,
the African Nations make up 10% of the world's emerging markets
market cap. According to a recent International Monetary Fund
report, at least eight African countries were headed toward
emerging market status when benchmarked against the founding
members of the Association of Southeast Asian Nations, which were
among the early emerging markets. The criteria of growth, private
sector-led growth, and investable markets were met in Botswana,
Ghana, Kenya, Mozambique, Nigeria, Tanzania, Uganda and Zambia. The
International Monetary Fund ((
IMF
)) has further projected that sub-Saharan Africa's economy will
expand 4.7% this year, double 2009's rate. Commodity exporting
countries are likely to lead the growth.
African ETFs Options
1: Van Eck Africa ETF (
AFK
):
This is an Africa ETF that invests in equities in the entire
continent. This index comprises stocks that have a market
capitalization of greater than $200 million, and if the market
capitalization of any stock falls below $100 million, then that
company may be deleted from the index.
Country Breakdown
South Africa 29.61%
Nigeria 20.21%
Egypt 14.25%
Morocco 13.61%
Equatorial Guinea 6.01%
Nigeria 5.00%
Zambia 2.48%
Mali 2.38%
Canada 2.06%
Kenya 0.98%
Ghana 0.86%
Australia 0.91%
Angola 0.87%
South Africa 0.71%
Top Ten Holdings
Tullow Oil PLC 6.01%
Mobile Telecommunications Co 5.00%
First Bank of Nigeria 4.41%
Maroc Telecom 3.74%
Old Mutual PLC 3.58%
MTN Group 3.54%
Orascom Constructions Inds 3.37%
Sasol Ltd 3.29%
Attijariwafa Bank 3.29%
Nigerian Breweries 2.99%
The equity markets in Africa are considered to be less developed
than even other emerging countries, so there can be higher
volatility in prices and greater risk of illiquidity, inflation and
lower market capitalization. The fund invests in only large and
medium market capitalization firms. While there is some overlap to
AFK, this fund does not stray from a South Africa focus. The major
holdings include large gold and platinum firms, with several banks
and telecom companies thrown into the mix.
2: The iShares MSCI South Africa Index Fund (
EZA
)
is considered the best play on Africa since South Africa is the
biggest economy on the continent. This ETF follows the MSCI South
Africa Index, an index that measures the performance of the South
African equity market. This ETF's 47 holdings focus primarily on
the industrial materials (32%) and financials (27%) sectors. The
fund invests in only large and medium market capitalization firms.
While there is some overlap to AFK, this fund does not stray from a
South Africa focus. The major holdings include large gold and
platinum firms, with several banks and telecom companies thrown
into the mix.
Top 10 Holdings (59.86% of Total Assets)
Company/ Symbol / % Assets
Anglo Platinum, Ltd. (AGPPY.PK) N/A 2.85
AngloGold Ashanti Limited (
AU
) N/A 5.57
Firstrand Limited (FANDY.PK) N/A 3.12
Gold Fields Ltd. American Depos (
GFI
) 3.96
Impala Platinum Holdings (IMPUY.PK) N/A 6.58
Mtn Group Limited (MTNOY.PK) N/A 10.48
Naspers Cl N (NPSNY.PK) N/A 6.96
Sanlam Ltd (SLLDY.PK) N/A 2.82
Sasol, Ltd. (
SSL
) N/A 10.33
Standard Bank Group Ltd (SBGOY) N/A 7.19
EZA Sector Breakdown
Sector Percentage
Industrial Materials 32.21%
Financials 26.41%
Telecom 10.74%
Energy 9.57%
Consumer Services 7.22%
Media 6.07%
Consumer Goods 4.53%
Healthcare 2.03%
Hardware 0.00%
Software 0.00%
Business Services 0.00%
Utilities 0.00%
3: SPDR S&P Emerging Middle East and Africa ETF (
GAF
):
The fund not only covers the African continent but extends its
portfolio to the Arabian Middle East geo economic areas as well.
The fund tracks the S&P Middle East and Africa BMI Index, which
is a market capitalization weighted index that defines and measures
the investable universe of publicly traded companies domiciled in
emerging Middle Eastern and African markets. The gross expense
ratio of this fund is 0.59%. The country with the biggest weight is
South Africa with 61.6%, followed by Israel with 24.31%, Morocco
7.89% and Egypt 5.53%.
GAF Sector Breakdown
Financials 28.51%
Industrial Materials 26.31%
Healthcare 14.22%
Telecom 9.01%
Consumer Services 7.10%
Energy 5.46%
Media 3.48%
Consumer Goods 3.35%
Software 1.41%
Hardware 0.52%
Business Services 0.33%
Utilities 0.03%
4: WisdomTree Dreyfus South African Rand Fund (
SZR
):
This actively-managed currency ETF offers exposure to the South
African Rand, seeking to deliver total returns reflective of both
money market rates in South Africa available to foreign investors
and changes in value of the South African rand relative to the U.S.
dollar.
With minimal consumer spending, the South African Rand is
relatively unsusceptible to fluctuations in exchange rates. This
fund has yielded consistent growth since its inception in 2008.
This currency is slightly less volatile than EZA, which makes this
currency ETF well suited for long-term holding. The YTD total
return on NAV is 23.02% and on share price is 25.94%. Not as large
as EZA's returns, but plenty of room for long-term growth.
Issuer: Wisdom Tree
Expense Ratio: 0.45%
SZR Performance
52 Week Return: 8.66%
YTD Return: 0.18%
1 Week Return: -0.82%
2 Week Return: 2.29%
4 Week Return: -1.51%
13 Week Return: -1.93%
26 Week Return: 0.32%
SZR Dividend
Dividend: $0.09
Dividend Date: 12/22/08
Dividend Yield: 0.32%
Annual Dividend: $0.09
South African Growth Overview:
As much as the South African Reserve Bank lowers interest rates,
consumer spending remains unchanging. Rather than being a
consumer-driven economy South Africa thrives on a product-based
economy. Materials production is at its highest. South Africa's
ports help transport the majority of the world's oil. Apart from
currency ETFs, the South African stock exchange operator JSE Ltd
hopes to list a platinum exchange traded fund ((
ETF
)) on the bourse this year as it looks to capitalize on increasing
investor appetite for commodity-based products. JSE was also
looking at launching an Africa ETF in South Africa, which would
trade blue chip firms from other big economies on the continent,
particularly Egypt, Kenya and Nigeria.
Investing in Africa
Investing in Africa is high risk for many reasons, including
currency fluctuations, poorly developed markets and political risk.
Yes, there are still some unstable countries, but the number of
African democracies has jumped from just four in 1990 to 17 today.
At the same time, many countries have begun liberalizing their
economies and developing their capital markets. Not just Ghana and
Egypt, but African markets overall have easily outperformed the
world averages last year and over the past three years. Moreover,
the number of stock exchanges has jumped from ten to 18 in the past
decade. The International business community and most
multi-national corporations operating businesses in Africa have
been reaping significant dividends from their investments and in
many cases the rates of return have been higher than from those in
other regions. Another very good reason to look to Africa is that
investment, rather than charity, is more likely to lift Africa out
of its troubles and poverty in the long-term.
Favorable Business Environment
in Egypt
The current conditions in Egypt are conducive to conducting
business successfully. The government is making a concerted effort
towards attracting international companies to the country, and
in-line with this, several projects have been initiated to improve
the investment climate even further. The economy is diversified and
investment opportunities exist in almost every sector. The reforms
of the Egyptian government have brought Egypt to the economic fore.
Bureaucracy has been reduced considerably, but still needs further
improvement in order to give sustainable results. Unemployment may
be reduced to 8.5% according to government data, but taking unknown
unemployment numbers into account, independent experts assume a
value of around 20% or higher. More investment in education is
needed to provide a sufficient number of qualified workers.
Although there has never been a better time to look at the
African markets for the serious long term investor, it is advised
that you keep your objectives, constraints and plans in mind at all
times while you research, invest in, manage and monitor African
stocks. And, consider getting professional advice when making
investment decisions.
Disclosure:
No positions
See also
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