Investor spotlight was unexpectedly thrust upon Africa this week after it emerged renowned Invesco Perpetual manager Neil Woodford was taking a stake in a Zimbabwe-focused fund.
Woodford, the head of investments at the group, has reportedly committed $25m for a 29.5% stake in Masawara, an $80m fund set to begin trading on the AIM market this month.
The Jersey-incorporated Masawara says following the recent stabilistation of the Zimbabwean economy - it is looking to obtain long-term capital growth through the acquisition of interests in agriculture, mining, telecommunications and real estate companies.
Rejuvenation
Under the rule of President Robert Mugabe, Zimbabwe's once prosperous agricultural economy was run into ruin. Hyper-inflation was a rampant feature of recent years, with the country forced to issue a Z$100trn note early last year.
However, Zimbabwe's move to abandon its own currency in the following months helped to bring back an element of stability to its economy. Inflation has been cut to just 5.3%, while Zimbabwean GDP grew in the region of 5% in 2009.
Woodford's involvement in Masawara will undoubtedly boost the profile of investing in Zimbabwe and the entire African continent.
Awareness
But retail investors will be fully aware of the potential pitfalls of investing in Africa, as shown by the dealing suspension enforced upon the New Star Heart of Africa fund in December 2008. The fund was liquidated the following April.
Liquidity
Heart of Africa manager Jamie Allsopp was faced with severe illiquidity in many of the fund's holdings during the height of the credit and financial crisis. But the manager, now at frontier markets specialist Insparo Asset Management, says investors should not be perturbed from investing in Africa.
"Liquidity, as always, is the issue in Africa, but you do have a number of options," he says.
"My old New Star Heart of Africa fund was long-only equity and daily dealing. What we run here at Insparo is a multi strategy hedge fund.
"The use of sovereign credit and corporate credit allows you to have a much larger pool of assets to diversify across. We can find the capital structure that offers the best value and creates a larger pool of liquidity in which to invest."
Equity and credit
Allsopp says the Insparo fund invests in both the equity and credit of Africa and the Middle East, which includes positions in Zimbabwe.
"In Zimbabwe we like a number of companies; we think that the brewery and telecommunication stocks are at attractive levels," he says.
"Zimbabwe became dollarised and wrote off its debts, this has led to a significant pick up in the economy. Inflation has come down significantly and many companies in the country are turning a profit.
"However, there remain some key concerns for the country with respect to foreign investment; an example of this is the forever changing laws surrounding indigenisation."
Confident
Allsopp is also confident on the opportunities available elsewhere on the African continent.
"The outlook for Africa is very positive, growth is regularly revised upwards and inflation is coming down," he adds.
"Look at Ghana for example; growth is forecast to be over 20% next year andinflation has come down for 10 consecutive months, now in single digits.
"There is a wind of change blowing through Africa; it is a bright spot in what is an otherwise gloomy world."
Investec Africa & Middle East fund manager Roelof Horne says the recent FIFA World Cup should have a positive, transformative and lasting impact on the value of ‘Brand Africa' and go a long way to changing the popular perception of the continent from "hopeless to hopeful".
However, while Horne accepts liquidity on the African continent has improved, he says it remains at less than 40% of previous highs.
Time factors
"Despite reports of significant portfolio flows into African markets, we believe it will take time for global capital allocations to fully recognise the extent of the investment opportunity in Africa," he says.
"The practicalities of gaining exposure to African growth while meeting the liquidity requirements of global investors on domestic stock exchanges remains a challenge.
"The combined value traded on African Stock Exchanges for June was just over $4bn, with Egypt at 60%, Morocco 25% and Nigeria 10% accounting for the bulk of value traded. This compares to over $30bn on the Johannesburg Stock Exchange.
"In keeping with the aforementioned limited liquidity and other barriers to entry - the accessibility of information, for instance - we believe a disciplined bottom-up, fundamental and long-term approach to investment not only to be appropriate, but essential."
