Investing in Africa is now becoming very popular, with hedge funds and tons of cash going into what used to illiquid stock markets across the continent and even the Caribbean. I saw it when I visited Nairobi, Kenya’s capital, early this year. Foreign investors are establishing accounts with local stock retail shops. One portfolio manager I met told me major U.S. investors have 20 percent of their portfolios allocated to emerging markets, of which the majority is in Africa. It should be noted that $45 billion are already invested in African stock exchanges by local investors.
Because portfolio diversification is important to them, serious investors are moving beyond traditional sectors in Africa, such as commodities, into such sectors as currencies — the Kenyan shilling, for example — and Nigerian financial stocks, thereby increasing liquidity in African markets.
With the eurozone mired in economic turmoil, these risk-averse investors are feeling safer putting their cash in Africa rather than in London or New York. In the TNJ Index, Kenya and Egypt improved over the past three months, while South Africa tumbled. Much of the gains in Kenya are fueled by a booming construction sector, with massive infrastructure projects that the government has embarked on expected to spur business activities.
Africa is not the only destination for these investors. They are also exploring markets in the Caribbean, in nations like Jamaica, Trinidad and Tobago and even Barbados, where exposure to global risks is limited. Trinidad and Tobago advanced in the past three months in the TNJ Index, while Jamaica slumped. A new report warned that austerity policy implemented under the auspices of the IMF could damage Jamaica's economic prospects. Jamaica has been cutting public spending while paying high interest on $18 billion owed to foreign creditors, at a time when the economy is trying to recover from decades-long poor growth.
Investing in those far-off lands can involve a leap of faith but makes sense at this time. Africa no longer seems the basket case it once did when one considers that Portugal has gone back to wealthy Angola seeking a bailout and struggling Portuguese immigrants are streaming back to Mozambique looking for work. Many people are making serious money all across Africa and the Caribbean, which have firmly embarked on a path to becoming lands of opportunity. There are still problems, for sure, but even Wall Street has its woes. Despite slipping in the latest TNJ Index, South Africa, a stepping stone for investment in Africa, ranks No. 1 worldwide for its regulation of security exchanges and No. 2 behind Canada for the soundness of its banks. It’s also one of the easiest places for a firm to raise money by issuing shares, according to the World Economic Forum.