Poor nations offer interesting opportunities for investors seeking tomorrow’s emerging markets. Several exchange-traded fund managers are already investing in Africa and the Caribbean, taking advantage of opportunities in frontier markets that are showing promise. The MSCI Frontier Markets Index, which tracks stocks in remote locales from Angola to Trinidad and Tobago, has gained 15 percent this year. While that gain lags a 57 percent rally for MSCI’s Emerging Markets Index and a 21 percent gain for its World Index, it’s an impressive record given the low entry point for investors.
Portfolio inflows into these remote markets are huge. Africa posted a 27 percent jump in foreign direct investment in 2008, compared to a 13 percent jump for Latin America and the Caribbean and 17 percent for Asia, according to U.N. data. The financial crisis last year saw withdrawals of $49 billion, but more than $44 billion of that have since returned in the first seven months of the year.
The Afro-Caribbean stock markets continued their steady climb in September on growing confidence about the global recovery. Investors are slowly losing their risk aversion. South Africa’s main index rallied 13 percent in the third quarter as mergers make a return and interest rates remain low. Africa’s largest cell phone firm, MTN Group, is in merger talks with Bharti Airtel, India’s largest cell phone company and Naspers Ltd., Africa’s largest media group, has bought 91 percent of Brazil’s BuscaPé.com for $342 million to expand in Latin America.
In Botswana, the economy expanded 1.3 percent from a year ago as diamond mines reopened and farming surged. Gross domestic product rose amid rising demand for diamond. The mines account for 70 percent of Botswana’s exports. East Africa is attracting foreign investors by the scores. U.S. private equity firm, Emerging Capital Partners, has invested $25 million in telecoms, Internet and media firms in Kenya and Tanzania. A technology boom is sweeping across Africa, as even the poor take advantage of cell phones to invest in local stock markets.
In Egypt, the Cairo and Alexandria Stock Exchange index has gained 30 percent since July. The gains for September alone are 15 percent. In the Caribbean, Jamaica’s index rose nearly 2 percent in September while the Trinidadian index slid less than a percentage point. In anticipation of financing from the International Monetary Fund in October, Jamaica was trying to slash government spending. Inflation has improved and growth rates are back up at 5.5 percent. It has large reserves and has regained macroeconomic stability.