By Sujata Rao
LONDON Jan 17 (Reuters) – Nigeria’s recent explosion
of violent political unrest is damaging the economy and forcing
investors to reassess their optimism over the short-term returns
available there and elsewhere in Africa.
Stock and bond investors started looking seriously at
sub-Saharan Africa after 2005 when debt forgiveness deals paved
the way for growth and reform across the continent. But anyone
seeking a killing from the hottest investment pitch of the time
will have been disappointed.
Frontier market investors pumped $1.3 billion into African
equity funds in 2010 excluding South Africa, EPFR says, up
10-fold from 2005. Such markets are a rung below emerging
markets in terms of liquidity, size and transparency, but
promise strong returns.
Asset managers Rensaissance estimate Nigeria — two-thirds
of MSCI’s frontier Africa equity index and almost a tenth of the
broader frontier index — took in half this amount, boosted by
deep banking reforms and smooth 2011 elections expected to
unleash infrastructure improvements.
The country was also included by Goldman Sachs in a group of
eleven most promising emerging economies after the BRICs.
Yet a dollar invested five years ago in MSCI’s Africa
frontier equity index, comprising Nigeria, Kenya, Mauritius and
Tunisia, would have lost 23 cents, Thomson Reuters data shows.
In Nigeria, the loss is 36 cents. An investor in mainstream
emerging equities would have made a 22 cent profit.
“If you go back to 2006 expectations of frontier markets
were very very high, that’s the difference between then and
now,” said Andrew Brudenell, who helps manage $180 million in
frontier stocks at HSBC Global Asset Management. “What you have
now are very low expectations and very low valuations.”
Continued…
