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Johannesburg - Developed economies' slow growth and lower returns on equities compared to emerging markets in Africa is a big driver of foreign investment to the continent and South Africa as its gateway is already starting to benefit, BoE Private Clients said on Monday.
Daryll Owen, chief investment officer at BoE Private Clients, said Walmart, which is using SA as a springboard into Africa, is an excellent example of this.
"Walmart's current turnover of $400bn per annum exceeds South African total annual GDP (gross domestic product) by $100bn and constitutes nearly half the $700bn total market capitalisation of the JSE," he said.
"There's good reason to sit up and take notice when a company of this magnitude starts to investigate seriously the options in South Africa and in the continent as a whole," he said.
"There is no doubt that the investment road ahead is likely to be bumpy, but the outlook for Africa as an emerging market is positive.
"The search for yield has already resulted in substantial foreign investment in South African markets and emerging markets generally. We have seen net inflows into emerging markets since April last year of something in the order of R6 trillion," he said.
Owen said that if one looks at the MSCI emerging market index relative to the MSCI world index, it is immediately apparent that the recovery in emerging markets since the lowest point of the global recession has been considerably stronger than that of developed markets.
"Indeed most emerging markets, including South Africa, are back, or nearly back, to the position they were in prior to the recession," he said.
Owen notes that in local markets equities have consistently outperformed other asset classes, including bonds and fixed deposits, as well as inflation, whether measured over the past five, 10, 20 or 50 years.
Taking all factors into account, Owen believes Africa offers global investors attractive opportunities, and that a revaluation of African markets together with an increase in corporate activity is likely to be the result.
"While forecasting is always fraught with assumptions, all of which have to be carefully considered, we're looking at GDP growth of 3% in South Africa in 2011 and around 4% between 2012 and 2015. Elsewhere in Africa, the forecasts for GDP growth between 2012 and 2015 are higher," he said.
Nigeria and Kenya are forecast to grow 6.2% and Tanzania, Uganda and and Ethiopia more than 7%.
"Whether or not the global economy is facing a double dip recession or whether the global economic recovery is likely to be more or less gradual - U-shaped or V-shaped - there can be little doubt that the share of world output or total GDP enjoyed by emerging economies will increase over the next few years," Owen said.
- Fin24
