How To Invest in Africa
Where’s a good place to start? Where’s the ideal market for beginners?
Generally, I recommend starting in a place like South Africa because the experience is very similar to opening up a brokerage account here in the States. As someone gets more comfortable with making wire transfers from their banks to the brokerages accounts in South Africa, maybe they’ll feel comfortable going to a place like Botswana or Kenya or some of the other more developed markets next.
What is your fund, the Kivuno Fund, investing in?
Right now, we have a large holding in Kenya and we’ve been investing in tea. Kenya is one of the world’s largest producers of black tea and there is actually a shortage of tea at the moment. There are a few listed companies on the Nairobi stock exchange. Although their output is down this year, the price of tea has gone up so much at market that they’re producing some great earnings. We are also looking at the Ghana stock exchange which has been hit hard in the past year but which we think is prime for a rebound. We like certain stocks in Botswana and Zambia. We just bought a position in a bank in Uganda. We are pretty well diversified.
So Ghana is a potentially great place to invest in now considering you think it’s going to reap the benefits of an economic rebound?
I really do like Ghana right now. It has a stable political environment and there is the prospect of oil coming in, which comes with a lot of risk for corruption but the government is taking that risk seriously and trying to put in mechanisms that will make sure those oil revenues benefit the whole country and not just a few elite. The prospect of that oil will prop up the currency and allow the government to invest in a lot of infrastructure and education. I like the direction that Ghana is going politically and I think its market is hugely undervalued. A lot of their banks are trading for less than book value, which is always a great sign for me as an investor. When I’m buying a bank for 75 cents on a dollar in a growing economy, it really makes me feel very bullish on the market.
What investments do you currently have in Ghana?
We’re invested in a company called Sand Milk. They’re the largest ice cream and frozen yogurt producer in Ghana. It’s a very well run company, has no debt on its books and it trades for six times earnings. There are a lot of very well-managed businesses in Ghana. The down side is that the markets tend to be illiquid. When you start looking at frontier markets, you tend to see that word a lot. It basically means only a few shares trade on a daily basis. This is a reason that U.S. banks don’t invest in Africa because they need to trade to make it worth their while. They need to trade shares at a million dollars each and a lot of African stocks, especially in Ghana, only trade $10,000 dollars a day if that at all. It’s a great advantage for a small-time investor because you are competing with other small-time investors and you’re not competing with big banks that have inside contacts with companies. It’s a more level playing field and it’s one reason that you can find a lot of bargains. The markets are under-researched so if you could find a good advisor who knows the markets well, they can point you in the right direction
How has the Kivuno Fund performed?
We launched in September 2008 when everything was crashing here. We’ve actually outperformed the indexes by a large margin since inception.
What are other ways that U.S. based investors can go about exposing their portfolios to African stocks?
One vehicle that would be the simplest way to get some exposure to Africa in your portfolio would be to invest in the Market Vectors Africa Index ETF. If you had a TD Ameritrade account, you can invest in it easily through that. The ticker symbol is AFK and what they do is invest in some of the largest African companies. I think they have about 50 different companies in the ETF and through it, you’ll be getting a lot of exposure to Egypt, South Africa and a bit of Nigeria. It is the most accessible vehicle for U.S. investors to African markets.
