Anna Ludvig, CEO and Managing Editor of Africa Global Funds, listened to our recent conference call “What’s Lurking in the Tall Grass: Opportunities and Risks in Africa” and wrote the following article:
With stressed valuations and currencies, markets in South Africa, Nigeria and Kenya offer numerous attractive investment opportunities, according to portfolio managers at Africa Capital Group LLC.
African markets have had a lot to deal with this year – falling commodity prices, currencies depreciation, a sharp slowdown in Chinese economy, uncertainty around the Fed’s next move, and risk-off investor behavior towards emerging and frontier markets.
“From an investor’s perspective, stocks are reflecting some of this pessimism, thus providing really interesting and attractive entry points,” said Jan Schalkwijk, CFA, portfolio manager at Africa Capital Group LLC.
As time progresses, the economists are revising their GDP estimates downwards, especially in the case of Nigeria and South Africa.
In the case of Kenya, from May 2014 through the end of last year people were increasingly negative and have switched to being a little more positive going forward.
Peter Thoms, CFA, founder and portfolio manager of Africa Capital Group LLC, said: “I would characterize our current investment stance as positive on Kenya, positive on select South African stocks, and neutral on Nigeria.”
“For us Kenya looks promising on a relative basis. We think the underlying Kenyan economy is actually doing fairly well,” he said.
“The South African economy is not in a great state right now. But in terms of our investment strategy we are looking to invest in what we think are the top handful of companies. We believe there are still companies that are pursuing a certain business strategy that is working out really well,” he said.
“In terms of Nigeria, we are constructive about the change of government there, but we are sort of waiting to see more. We do have a little exposure there, but not near as much as we would have for example if we see things really start turn around,” he said.
Schalkwijk added that the oil factor is complicated in Nigeria and it’s really hard to put a good metric on the severity of that impact.
“There is quite a bit of uncertainty for us in Nigeria, so we are very selective. The insurance sector, for example, is an interesting one,” he said.
Africa Capital Group LLC is an independent investment firm based in Coronado, California, USA.
The firm manages a long-only equity strategy which targets domestically oriented industries in Sub-Saharan Africa, including financials, telecoms, consumer goods, healthcare, food and beverage, utilities and infrastructure.
The investment objective of the strategy is long-term capital growth.
Thoms said: “The macro environment is going to affect things, but we believe that the dominant factor that drives investment returns over time is company level execution.”
“It’s important to differentiate between the companies and pick the ones that have the right business model and that are delivering the growth. Africa is a big place to invest, but we are only looking at 20 companies in the whole mix, that are doing really well,” he said.
For more articles and analysis investing in Africa by Anna Ludvig and her team, please visit Africa Global Funds.
Africa Capital Group LLC
1330 Orange Avenue, Suite 302
Coronado, CA 92118