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Africa poised to benefit from alternatives appetite, says equity index expert

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Fund investment in Africa has a great future, according to Dr Ayo Salami, director of African Business Research and co-manager of the Duet Victoire Africa Index Fund, an open-ended Jersey

Fund investment in Africa has a great future, according to Dr Ayo Salami, director of African Business Research and co-manager of the Duet Victoire Africa Index Fund, an open-ended Jersey Expert Fund launched last December and listed on the Channel Islands Stock Exchange.

Arguing that ‘early adopter’ investors in Africa are likely to enjoy the highest returns, Salami says: ‘So many African countries have democracies now, which has helped economic stability. Direct investment from China and Russia and private equity funds too is helping change these economies. There is so much to develop there. For example, Africa does not have many credit cards yet – the banks could clean up.’

Every year African economies are getting stronger and reducing their debt burden, while national stock exchanges are growing and interest in African stocks is growing among international analysts. Salami notes that several African-focused funds have been launched recently and expects that more are in the offing.

He argues that as a market uncorrelated with North American and European stock markets, Africa stands to benefit from the growing appetite for alternative investments, and he is convinced that the continent will lose its ‘exotic’ tag to become a standard asset class. He says the fund has attracted keen interest from the Netherlands and sees strong potential among high net worth Swiss investors.

The fund carries a USD100,000 minimum investment and is aimed at institutions and high net worth individuals. There is a 1.25 per cent annual management fee.

Salami, who was chief Africa equity analyst at Nomura and is a former lecturer at the Cass Business School at London’s City University, has been researching African equity markets since l998.

The Sub Sahara Africa Fund follows the Sub-Saharan Africa Large Companies Index, which is calculated and maintained by Salami at African Business Research and comprises companies listed on the stock exchanges of Botswana, Ghana, Kenya, Malawi, Mauritius, Nigeria, Tanzania, Uganda and Zambia. To be eligible, companies must have a market capitalisation greater than USD250m and meet minimum trading liquidity standards.

Salami, who is a member of a committee managing the fund with Duet Group co-chief executive Henry Gabay and investment managers Karim Khimji, and Uday Garg, says Duet decided not to create an exchange-traded fund because the lack of liquidity in the stocks would make daily trading difficult. The fund replicates the constituents of the index, holding a percentage of each stock in proportion to its weighting in the index.

The 76 companies in the index are mostly from Nigeria (40 per cent), Kenya (26 per cent), Mauritius (13 per cent) and Botswana (11 per cent), with most of the other countries accounting for less than 5 per cent. South African companies are excluded because otherwise they would dominate the index, and the market is well served by other indices and investment products. Banks dominate the index with a 60 per cent weighting, with consumer companies, tourism, construction and materials, cement, and breweries also represented.

Salami says hardest task in promoting the Africa fund is persuading investors that just as they consider a hedge fund or a grain or oil ETF, so they should invest in an uncorrelated play like Africa.

The difficulty, he says, is that investors so not associate Africa with long-term steady equity returns. In fact, he argues, well-advertised problems such as public corruption are less endemic than in the past and will continue to diminish as countries become wealthier. Already, he says, ‘Uganda, Kenya and Nigeria enjoy fiscal surpluses, with Nigeria benefiting from the USD100 a barrel oil price.’

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