Africa benefiting from 'back to basics' investor mood

Africa is benefiting from adverse investor reaction to the complex debt packaging practices and sophisticated product structures that paved the way for the credit crisis in developed markets.

Relief at a chance to go back to the basics is driving increased international investor interest in Africa, according to Imara Africa Securities, a subsidiary of Imara Holdings, the pan-African financial services group.

The newest member of the Imara group offers a ‘one-stop-shop’ broking service in sub-Saharan markets excluding South Africa, providing a multi-country dealing service to clients.

Imara Africa Securities takes on a marketing and research function in its regular interaction with international investors. These activities foster higher trading volumes in targeted jurisdictions, entitling it to a share of commission on these trades from partner brokers.

It is therefore sensitive to changes in share-trading activity and investor sentiment. That sentiment has remained positive since the launch of the business at the end of last year.

Botswana-based CEO Alun Thomas noted: “Some African markets have been relatively flat following last year’s buoyant rise in share values. Even so, international investor interest remains high. We have reached our initial targets and have had to extend our original spread of markets.

”One factor is certainly the appeal of a fundamental investment approach and equities that are driven by basic demand in areas like the commodity market. Investors are attracted by the low correlation with the developed markets, particularly since the sub-prime crisis and related credit squeeze.

At launch, Imara Africa Securities offered international investors access to markets in Botswana, Namibia, Zimbabwe, Zambia, Malawi, Kenya, Mauritius and Nigeria. Recently, it widened the offering to include Ghana, Uganda and Cote d’Ivoire. Further additions are planned in the second half of the year to meet international investor appetite for a broader spread of African equities.

To accommodate the business model developed by Imara Africa Securities, the Botswana Stock Exchange granted the company non-broking membership of the exchange.

As the Gaborone exchange’s first non-broking member, it will be permitted to share commission with local brokers that fulfil orders placed by Imara’s international clients.

Equity market growth in US dollar terms was impressive in 2007 in many African countries – for instance, up 128% in Zambia, 114% in Malawi, 94% in Nigeria and 51% in Namibia.

Gains have been less impressive in some markets in recent months, but investor appetite is still firm.

“Low correlation with developed markets facing the credit crisis is one factor,” said Thomas. “Another is strong economic fundamentals and African GDP growth around 6% versus low growth in developed economies. Low correlation even among fellow African markets is another attractive feature for investors who are concerned about knock-on-effects from one country to another.

“For example, we saw a cooling off in Nigeria, but that did not mean equities in neighbouring jurisdictions fell in sympathy. In Africa, excluding South Africa, the factors that affect specific national performance are specific to that country. You don’t have to factor in a host of correlation factors from next door or from another continent, for that matter.

“This can be extremely reassuring for some fund managers and large investors and looks likely to underpin our growth for some time to come.”