African Stocks Are The Hot New Investment Product
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Ever considered Buying stocks snd bonds from companies located in Ghana Kenya or other African nations? To some it may not sound like a good investment, but there is an increaaing a trend of institutional money managers coming in ans grabbing up African securities at a frantic pace.
These stocks countries have what experts are calling frontier markets. They are described as markets from small nations or with developing capital markets. 2017 reports show that about $141 billion in capital was infused into frontier markets. Last year was the highest earning in 11 years.
While U.S. stocks have experienced a correction in 2018 after Las years record gains; frontier market assets seem to have sustained their strong performance. The premiere frontier markets index (FM) has risen about 6% year to date. Meanwhile the U.S. S&P 500 has lost over 3% in 2018.
Another popular Etf in the fro tier markets is Guggeinheim’s frontier market ETF (FRN). Their asset has gained more than 9% so far in 2018 on the heels of a stellar 2018 with over 20% growth.
One reason Investors are attracted to African stocks because they present the opportunity for big gains and they offer diversification. Most companies located in the sub-Saharan region have less impact from political volariliry emanating from headlines made by the U.S. President or the trade war between the United States and China.
Part of this growth is created from stories of economic turnarounds and currency deregulation in countries like Nigeria.a study from the eVestment compant shows that African stocks are becoming popular among both individual retail investors and institutional fund managers. The two groups poured about $2.5 billion into various African equities in Q4 2017. In the same srudy, it was found that institutional funds flowing to U.S. markets decreased by more than $106 billion during that same period.
African stocks are hot, but African bonds are even hotter! Research data shows that both retail and institutional investors hold over $37 billion worth of African bonds in Q4 2017, that's nearlt three times the level of Q1 2013 investment. Institutional fund managers held over $29 billion in debt bonds from Africa in Q4 2017. That amounts to five times the holdings held five years earlier.Bonds issued in hard currency have also seen a rise to their highest levels ever
Risky Business ?
Investing rewards are bot without their risks chief of which is concerns about future economic stability. It is projected that half of the top 25 frontier countries are to reach gross debt to GDP ratios of o 60% or more in 2018. Seven of those 25 have already been downgraded by the credit ratings agencies. This typically means countries will have to pay more interest on debt in the future as their ratings indicate a higher risk of default.
Nonetheless investors say they are overall optimistic and they are satisfied with the compensated generated from the high bond coupons and stock stellar performance that African markets offer.
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