Investing in Africa is becoming very popular now with hedge funds and tons of cash are going in going into what used to illiquid stock markets across the continent. I saw it with my own eyes when I visited Nairobi two months ago.
I found many foreigners establishing accounts with local stock retail shops and was told this has been going on for about two years but has picked up steam in the past year.
One portfolio manager I met told me major U.S. investors have 20% 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.
For these serious foreign investors, diversification of portfolio is not just a matter of picking a few stocks and bonds here and there, and perhaps looking at what’s known as low-hanging fruits in developed markets in Europe and North America. In fact with the euro zone mired in economic turmoil, many of these smart but risk-averse investors are feeling safer putting their cash in Africa rather than in London.
And they are not just looking at the traditional sectors such as commodities. They are getting involved in all sectors, including currencies such as the Kenyan shilling and Nigerian financial stocks. In so doing, they are increasing liquidity in African markets.
Why Africa, you may ask? Exposure to global risks is limited in these frontier markets. Africa, of course, is not the only destination for these highly skilled investors. They are also exploring markets in places such as Peru, Chile, Colombia and the Caribbean nations, not to forget the usual suspects: Mexico and Brazil.
Investing in those far-off lands can involve a leap of faith, but it makes sense at this time and it can easily be done by using local retailers and international institutional firms. Africa is no longer a waste basket it once was when you consider that poor Portugal has gone back to wealthy Angola seeking a bailout and struggling Portuguese immigrants are streaming back to Mozambique looking for work.
The bottom line: there are plenty of people making serious money all across Africa and it may not be a grandiose statement to say the continent may soon be a land of opportunity. There are still some problems, but I’ve never seen anywhere there’s none, including on Wall Street.More From George Orwel