Strong demand for emerging market debt and equity assets should remain, according to experts in the field.
Morrow says small-cap stocks tap this domestic structural growth, particularly in rapidly developing industries, while active management minimises risks associated with corporate governance problems and low liquidity.
Julie Dickson at Ashmore highlights the need for active management in emerging and frontier markets, since reliable and accessible information is still rare. “A lack of sell-side coverage does not mean a lack of information. All it means is that there are many undiscovered opportunities, if one is willing to do the hard work,” she explains.
Private-equity opportunities, accessible to foreign investors mostly through funds listed on mainstream exchanges, are also a growth area.
In emerging market equities, too, fund launches continue apace. The Baring Frontier Markets Fund, managed by Michael Levy and supported by Dr Ghadir Abu Leil-Cooper, head of EMEA at Barings, launched in April with more than $21m. Frontier markets include Nigeria, Saudi Arabia, the UAE, Sri Lanka and the Ukraine. Barings believes they offer potential for strong long-term growth, in a low growth world and low correlation with both emerging and developed markets.
Brokerage Exotix brokerage is also turning its attention to frontier markets, with greater coverage of securities in countries such as Egypt, Cyprus, Slovenia, Rwanda, Nigerian bank bonds (GTB and Access) and MBPS (Oman).
The firm’s top five African equity picks performed well last quarter (up 12% in US$ terms). Stocks highlighted for the coming quarter include State Bank of Mauritius (Buy), Mauritius Commercial Bank (Buy), Sonatel (Buy), Nigerian Breweries (Sell) and Unilever Nigeria (Sell).
Ingrid Kukuljan, co-manager of the Jupiter Emerging European Opportunities Fund and EMEA sub-fund manager of the Jupiter Global Managed Fund, noted following a recent trip to Nigeria and Kenya: “Many things need to change in Africa for growth to continue at superior rates. But on the ground, there is an overwhelming feeling that things are moving in the right direction.”
While many investors are still focused on Asia, Africa has more of the world’s fastest-growing economies than any other continent.
From 2000-2011, 10 African countries grew at an annual rate of 7% or more, and Africa has proved resilient during the global financial crisis, growing 3.1% in 2009, when most of the world faced recession.
Africa’s newly strengthened connection with China, is also driving growth. China is sub-Saharan Africa’s biggest bilateral trade partner, and while Chinese trade with the world has risen eightfold, with Africa it has seen a tenfold increase, from $11bn in 2000 to $129bn in 2010.
For this rate of growth to continue, the continent needs to meet pressing power, transport and other infrastructure needs, estimated by the World Bank to run to almost $100bn a year just for basic connectivity. To date, spending has been less than half that, suggesting strong ‘push’ and ‘pull’ investment factors.