Greater risk appetite for investment in sub-Saharan African equities, say experts
There is currently a greater risk appetite for Africa, particularly for investment in equity markets, says Edem Lassey, an analyst at Investec.
Sub-Saharan African stock exchanges are attracting increasing interest from investors.
“If you look across African markets you will see that … [as of mid-January], stock markets are up in quite a few of the bigger markets – 10% across the board – as global investors and local investors have more risk appetite,” he said during a panel discussion at the Africa Frontiers Forum at the end of last month.
Lassey added that this has a lot to do with the world looking at new places for returns as traditional markets show little optimism for yields.
“So they are looking for income, and they have been looking for income because there is general uncertainty,” explained Lassey. “But because of that huge demand of people looking for income, yields have gone down so much that everyone is looking at where they can put [their] capital now. Well equity is looking pretty cheap, pretty comfortable, so you see a kind of big move into equities right now.”
Nazmeera Moola, a director at Macquarie First South, agreed, saying there is a shift from last year’s inflows into bond funds, to money being placed into equity funds.
“What has also started to happen is that equity markets have started to come into play in the last couple of weeks,” she added.
“You have started to see people think, ‘well maybe there is growth that can come from somewhere’ and you have seen a huge shift in money from bond funds into equity funds and that’s the current story,” said Moola. “Whether that continues to play out this year is a function on whether this optimism about growth continues.”
Moola, however, believes that sub-Saharan Africa will continue seeing inflows into equities.
“Five years ago Africa was for African funds only. It was a niche market. Investec Asset Management started an African fund and this was so unique,” said Moola during the discussion. “Then about three years ago we had frontier funds. Now big, emerging market, chunky, clients are investing in Africa.”
When it comes to risk, Moola argues that investment in sub-Saharan Africa is bypassing South Africa as the rest of continent starts to become less and less risky.
“We’re getting optimistic about sub-Saharan Africa, we are not getting optimistic about South Africa because the direction of risk is going in the opposite place,” she explained. “South Africa, on an absolute level, is less risky than most of the continent but the direction of risk in South Africa is increasing, while the direction of risk in the rest of the continent is decreasing.”