Zurich - Investors who want exposure to fast-growing African economies should look for stocks which will profit from rising consumer spending rather than volatile mining earnings, an African Alliance fund manager said on Wednesday.
Paul Clark, head of Africa Funds at the asset management arm of African Alliance, said African per capita gross domestic product (GDP) has continued to grow through the financial crisis and is poised to reach a sustainable rate of 5%.
"This is a young market, with growing numbers of African consumers," he told Reuters. "Something is happening on the continent that is not the traditional resources bust and boom."
Clark manages the Africa Pioneer Fund which invests in primary-listed African equities and currencies outside South Africa, with its biggest holdings in Egypt, Nigeria and Tunisia in the consumer goods, industrials and financials sectors.
He said many investors seeking exposure to the continent bought South African stocks, but most Johannesburg-listed firms have minimal revenues coming from the rest of Africa, apart from telecoms firm
MTN Group [JSE:MTN].
Others invest in mining stocks listed on the major bourses, but Clark noted that natural resources account for a mere 24% of Africa's GDP growth from 2000 to 2008.
"There is 76% other stuff happening," he said. "Whether it is a commodity company in Uganda or Vietnam won't make much difference. It's not much of an Africa play."
Clark, in Zurich to meet investors, said most of his fund's holders are smaller institutions in Europe and rich individuals.
Markets getting cheap He admitted that recent returns on the continent have been poor, despite robust economic growth.
"Compared to other emerging markets, compared to South Africa, the group of markets we cover has not recovered even though GDP per capita has recovered," he said. "The markets are getting cheaper and cheaper because they haven't recovered.
"We are sitting on the sidelines. When that will change, we don't know," he said.
His fund, worth $34.7m at end-June, has fallen 6.4% this year after gaining 28.8% last year. African Alliance Group has $1bn in assets under management.
With a 30% exposure to Egypt, Clark said the fund had managed to minimise its losses there after political turmoil batttered stocks by investing in medium and small-sized companies which have not tumbled as much as big companies.
It has also been helped by gains in its stake in appliance maker Olympic Group, which jumped on a bid by Sweden-based Electrolux AB. It also has a big holding in cable maker Elsewedy Electric.
"There is a general risk aversion by investors. The North African revolutions have made people even more nervous but these are going to be positive longer term, given their educated population and good manufacturing base for Europe," he said.