Bright future for African stockpickers, says Carnegie


Africa may not come to mind among mainstream Swedish investors just yet, but companies in the region are more resilient than many of them realise, says Karin Fries, fund manager at Carnegie Fonder.

Africa may not come to mind among mainstream Swedish investors just yet, but companies in the region are more resilient than many of them realise, says Karin Fries, fund manager at Carnegie Fonder.

Fries (pictured) runs the manager’s Sweden-domiciled Carnegie Afrikafond. This is an equity fund with a mandate to be at least 90% invested at any time, while offering investors daily liquidity. It is the type of fund that appeals to the risk takers, the early adopters, rather than the mainstream, although the hope is that as performance continues as it is now, over time it will edge that way, Fries says.

The performance figures lend weight to the idea that this type of product requires a long-term investment horizon and the ability stand fast during events that can cause short-term volatility. In February this year, the fund’s best performing market was Ghana, which rose by 17% in SEK terms. But South Africa, the fund’s biggest country, weighting at about 68% of the portfolio, fell by -2% over the same period.

Data from FE suggests the fund is up by about 19% since inception in May 2006, rebased in euro terms. But since early 2009, the fund has risen by about 98%, while indices such as MSCI Ghana and MSCI Nigeria are up by 109% and 142%, respectively. What has dragged is Nigeria, which is down by -29% since March 2008.

Fries stresses that countries are not what are foremost in her mind: it is the company specific opportunities that attract her. There are some 20 stock markets across the continent, providing enough good companies for a stockpicker to choose from, despite the risks that are attached generically to the continent – often by those not invested there themselves.

“Political risk is always present in Africa”, Fries says. “[Since the fund launched], Nigeria has had five finance ministers, three prime ministers, two central bank heads and bank corruption; Kenya has faced ethnic tensions; North Africa has gone through a total upheaval; while Africa, along with the rest of the world, faced a financial crisis.”

However, despite these challenges, and despite markets such as Nigeria still well off their all-time high, markets are “moving on”.


Key sectors across the region include banks, financials and consumer, especially when considering ex-South African markets. The definition of consumer is slightly different in Africa than elsewhere, Fries explains. An example is cement: in Africa it arguably could be treated as a ‘consumer’ good, because people building their own houses may buy a single bag of cement, build a bit, then buy another bag when they have the money. Breweries are another key sector, with European firms such as Heineken and Diageo operating in the region through subsidiaries.

Regarding South Africa, the key market in the region, Fries says her view of local companies is positive. This is in part because of the increasing levels of business it is doing outside the home country (not only into other parts of Africa but into other markets such as India). Fries says this also because: “Companies in South Africa are of a high quality and benefit from being conservatively led. They have strong balance sheets with low levels of debt. They avoid risk and tend to take a methodical approach to growing their business.”

By some measures, the South African financial sector is more highly rated than the Swedish or French equivalents, Fries adds. She says she is trying to benefit investors through what she terms a “scalable portfolio”. The fund’s size is about $70m-$75m – a size described as fairly big considering the retail investor constituent – and liquidity is sufficient to double the portfolio without running into problems.

Investors should also consider the other benefits they can derive from Africa, Fries suggests. One is the high dividends being paid out; in many cases shareholders could expect 70%-80% of profits to go their way.


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