Africa ETFs: Dogged By the Past?
August 15th 2010 at 1:00pm by Tom Lydon
Africa is one of the few places where the past continues to haunt the minds of potential investors. The phrase “this is Africa,” made famous by the movie Blood Diamond, seems to pervade the imaginations of many. Yet, looking at the facts, there is significant growth opportunity for exchange traded funds (ETFs) that many investors fail to see out of fear.
According to Vito J. Racanelli of Barron’s, the image of Africa as lawless, corrupt, unstable, inadequate and uneducated is wrong and could cost many potential investors a big opportunity. [South Africa: World Cup Afterglow?]
Instead, Africa has “transformed itself into one of the fastest-growing regions in the world, where banks haven’t needed bailing out, no large companies have folded, with no accounting scandals and where the biggest problem businessmen have is getting capital to finance growth,” says Miles Morland, whom many consider to be the father of fund investment in Africa.
The opportunity now is particularly excellent because many stocks are now selling at 11 to 12 times trailing 12-month earnings; in the States, stocks historically trade at 15 times trailing earnings.
China has definitely seen the opportunity. In return for commodities, China is building out Africa’s infrastructure in seaports, power plants and roads, which effectively makes China a big investor in Africa. [The Vast Appeal of Frontier Market ETFs.]
In addition, Hillary Clinton put her stamp of approval on Africa during a recent conference at which she said, “Africa is open for business and ready to grow.”
Media Newswire reports that over the past 10 years in Africa, “child mortality rates have declined, while primary school enrollments have increased. More people have gained access to clean water and fewer have died in violent conflicts. More than 315 million people began using mobile phones and every day, 21st-century technology is creating new opportunities and unlocking untapped potential.” [5 Infrastructure ETFs With Room to Grow.]
In one example of Africa’s growth: in Angola, 35% of the population now has a bank account. That’s up from 4% just four years ago, says The African Report.
However, Clinton was not all praise. She did indicate that despite the vast improvements in Africa, it still faces many headwinds. Particularly, its infrastructure needs to be built out to improve efficiencies in trade and business. Also, the separate nations within Africa need to work together to improve the collective good.
For more stories on Africa, visit our Africa category.
- iShares MSCI South Africa Index (NYAR: EZA)
- Market Vectors Africa ETF (NYSEArca: AFK)
- SPDR S&P Emerging Middle East & Africa (NYSEArca: GAF)
Sumin Kim contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.