SA generations split on Africa investing – Imara

THERE’S a generational split in South Africa on the attractions of investing in Africa’s frontier markets, with the under-50s bullish on long-term opportunities while their older compatriots for the most part remain Afro-sceptics.

The young-old divide has been identified by Imara Asset Management, South Africa, a Johannesburg asset management and advisory business that serves many high net worth individuals.

Its Imara group parent is represented in 10 sub-Saharan countries and manages several equity funds focused on African frontier markets.

Imara’s Johannesburg-based investment professionals are therefore well placed to alert local investors to opportunities across the continent and equally well positioned to gauge response.

“The generational split occurs about age 50,” says Chris Botha, a senior fund manager with oversight of the segregated portfolios of private clients.

“The divide is influenced by attitudinal factors and different investment needs.”

He believes many older South Africans might have been influenced by Afro-pessimism early in life. Younger South Africans are more pragmatic and tend to be more aware of pan-African growth potential.

“Generally, older investors have a longstanding association with developed markets,” notes Botha. “They have grown their wealth over many years, tend to conservatism and still view African markets as a high-risk proposition.

“Younger investors may have less capital right now, which makes them alert for high-growth opportunities – including those in Africa.

“In recent years, they have seen South African telecoms companies achieve success to the north, followed by the banks and retailers. If corporates can achieve strong growth in Africa, why can’t they?”

Imara suggests a simple strategy to help older investors develop a more flexible view of African opportunities – buy local while tapping cross-border growth.

Botha explains: “A growing number of JSE-listed companies derive a portion of their revenue from African associates or subsidiaries. Older South Africans are often happy to invest in these stocks.

“Detailed reporting by these companies increasingly highlights significant contributions by their operations to the north, gradually introducing older investors to their long-term growth potential.”

Events in Europe were also nudging older investors toward a reappraisal.

“Low correlation with Europe has become a significant factor in favour of investment in many African markets,” explains Botha.

“Perceptions of risk are being turned upside down. ‘Developed’ no longer means inherently safe while ‘Africa’ no longer means perennially risky.

“Risk has to be assessed on economic fundamentals rather than the labels given to certain markets. In view of growing populations, the emergence of a new middle class and continuing demand for African commodities, some fundamentals are moving in favour of the continent’s frontier markets.

“This suggests that over time the generational split will become a thing of the past and Afro-pessimism with be replace by guarded Afro-optimism.”