Risk-loving, intrepid investors looking into frontier markets and related exchange traded funds (ETFs) may also take a gander at markets in Africa, if the International Monetary Fund has any say in the matter.
Economists predict that 15 of the 20 fastest-growing countries for 2009 will be in Africa, reports Stefanie Eschanbacher for fundstrategy. According to the IMF, some African countries may become the “second generation of emerging markets” with macroeconomic performances on par with those of Asia countries’ back in the 1980s.
Africa has the untapped potential for growth and could result in increased income per head with a new middle class. The political and social environment is becoming more stable, and there are institutional reforms that have set interest rates and sound monetary policies. Make no mistake, though: Africa is still a volatile continent and there are risks involved when looking to frontier markets for investment.
Even if commodities like oil are not the money-makers they use to be, soft commodities, such as tea, cocoa and agriculture products, are more stable. African countries are also adopting economic models that focus on their domestic markets.
Fund managers are looking into African companies that deal with infrastructure projects, brewing, food, telecoms and cement. Areas such as South Africa, Nigeria and Zimbabwe show some promising investment opportunities.
But there are currency risks and possible fluctuations in inflation. These smaller and less liquid markets are currently deterring potential investors, as stated in SmartBrief. Once commodity prices start climbing, investors may once again favor the potential gains over the innate risks.
- Claymore/BNY Mellon Frontier Markets (FRN): down 1.2% year-to-date; Top Fund Country Weightings: Egypt 14.9%, Nigeria 1.9%
- PowerShares MENA Frontier Countries (PMNA): down 14.3% year-to-date; Egypt, 17.2%; Morocco, 16.4%
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.