Stephane Henry, CEO of Investment Professionals Ltd (IPRO), an integrated financial services group which specialises in Africa and India, gave valuable insights into the African and Indian investment landscape in an exclusive interview to AfricaMoney.
- Can you comment on the demand for Africa-focused funds?
There have been some very interesting developments in Africa during the last ten years, both economically and politically. Africa is ready to be an investment avenue for investment funds. The continent remains an investment which can fit into institutional portfolios, for instance pension funds or insurance companies. Africa has been offering high returns over the last five years and is potentially capable of offering good returns over the next five to fifteen years, but remains quite small in terms of market capitalisation and challenging in terms of liquidity of stock exchanges. And, the continent is highly fragmented with many countries across Africa at various stages of development, making it very difficult and very costly to invest into.
So, Africa can only be seen as a diversification of the portfolio and cannot be a substantial chunk of any investment portfolio. Investors from the US, from Europe and even from Africa are interested in investing more into this emerging continent but must be aware that there are two forms of investments available to them. First, investments into companies which are not listed on the stock exchanges, and secondly, into listed equities. For instance, IPRO’s African Leaders Fund invests into the main stock exchanges present in Africa such as the stock exchange of Nigeria, Kenya, Botswana, Zambia, Ghana, Ivory coast or South Africa.
- Which countries in Sub-Saharan Africa are seeing the most interest from investors?
In fact, today, the region within Africa which attracts the most attention from institutional investors is the East African corridor – Kenya, Uganda and Tanzania primarily. South Africa is in a very difficult economic situation right now and is not attracting a lot of investors at this point in time. Central Africa is a difficult zone which includes strife-torn Congo and I think very few people will dare to invest into these places right now. The Anglophone West Africa, which includes Ghana and Nigeria, have faced a number of economic challenges, current account deficits and weak currencies which frighten the investors a bit. The two zones which seem to emerge right now from very low levels are the Francophone West Africa, with emphasis on Ivory Coast and Senegal.
Then again, North Africa is showing signs of rebound, principally countries like Morocco or Egypt. Egypt, which was the leading investment hub in MENA, has been very volatile since the revolution which took place a few years ago but now seems to be on the right path to overcome these challenges and seems to attract investors again. There are still a number of problems with Tunisia and Libya but overall North Africa seems to be a better place for investments compared to what it was two years ago.
- What about IPRO’s India-focused funds? Has any drop in demand been seen?
Yes definitely, over the last three years at least, India has faced many challenges. The stock exchange has been trending down over the last three years, and last year in particular, the Indian rupee went down significantly against the US dollar. As a result, international investors, primarily institutions, have been on the sidelines as far as India is concerned. Very few investors now want to take risk with investments denominated in Indian currencies and are now waiting for the results of the general elections in the country before coming back to the Indian market, both in terms of currency and equities.
- The Annual Report of IPRO Growth Fund for the financial year ended 30June13 mentioned that the local portfolio gained 8.7% during the financial year to 30June2013, slightly underperforming both SEMTRI and SEM -7, which gained 10.7 and 10.2% respectively. How has it performed in the current financial year to date?
The local portfolio for IPRO growth fund has increased by 8% since the first of July as a result of improved market prices overall on the Stock Exchange of Mauritius (SEM). Primarily, the financial services sector and the tourism sector have performed well. But we have seen that, since the first of January, the market has been more or less flat primarily because of the current weak demand from international tourists visiting Mauritius. The figures which have been published for tourism have not been good and particularly the figures for occupancy rates for hotels are disappointing. We should still be very careful in terms of investments into hotel stocks which are listed on the SEM. They still have a lot of debt on their books and this is really affecting their bottom line. Any improvement in the SEMDEX is not expected before the last quarter of the current calendar year.
- Also, your international portfolio gained 29.8% over the year, outperforming the MSCI EFM Africa ex SA which gained 27.7% and underperforming the MSCI FM Africa which gained 63.8%. How has it performed in the current financial year to date?
Since the first of July, this portfolio has been more or less flat primarily as a result of the drop of the market in Nigeria which we have previously discussed. And, Nigeria being more volatile, obviously the MSCI EFM Africa index has been flat as well so, we are in line with that index. However, we have under-performed the EFM Africa ex SA index that includes Egypt which is a place that has rebounded quite well. But 2012 and 2013 were extremely good years, where our investments in Africa returned 23% and 20% respectively in USD terms.
- What are your expectations for 2014 in regards to African Market Leaders (AML)?
Today the fund is down by 5%, but we expect a rebound in the coming months. After two years of excellent performance, we’ve seen the market being much more volatile in Nigeria, Ghana, Zambia and in Botswana as well. In Zambia, the currency has been affected by weakness of the copper price, which is the main commodity. So, we see increasing challenges in the region but we are currently rebalancing the portfolio and expect improved figures during the coming months, and a moderate positive return for 2014 as a whole.
Read the second part of this interview later at 4.30 p.m. today.
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