Yes, I believe it does. Most African countries north of our borders are likely to generate substantially higher GDP growth than SA over the medium term, which should underpin corporate earnings growth and currency stability. Many of the equity and bond markets performed poorly last year, so valuations are attractive in many countries. Equities are trading on relatively low PE multiples and fixed income instruments are offering high yields, often in the high teens.
A diversified portfolio should include exposure to both developed and emerging markets. Individual African markets are often driven by country-specific factors and thus these markets offer good diversification benefits because they may be uncorrelated to moves in global markets. On the other hand, some of the factors that drive markets in the rest of Africa are also observed in South Africa, including significant exposure to commodities and investor risk appetite for emerging markets in general.
At a practical level, there are significant challenges in building a diversified portfolio in Africa, particularly for large investors. Many of the capital markets are undeveloped so it may be difficult or impossible to get exposure to a particular investment theme or thesis. If you are able to get exposure, then liquidity may be low and transaction costs will usually be high. Information flow is poor relative to developed markets, travel is challenging, and local regulations are diverse and often fluid. So it’s challenging to do the necessary due diligence to get comfortable with a particular investment case and its implementation.
More attractive. The recent debt crises have highlighted the diversification benefits of investing in Africa, and also the advantages of investing in countries where private sector and government debt are at low levels.
Yes, while it is certainly challenging at the moment, and there is an oversupply of professionals, it is a stimulating and rewarding environment, particularly if you have a passion for business and markets. Young graduates can quickly get exposure to many different types of industries, companies and countries in their investment analysis. Investment analysts, even with relatively little experience, may be introduced to CEOs, CFOs and other experienced industry leaders, which is a privilege and a great way to learn.
I enjoy spending time with my family, playing with my three-year-old son, and exercising or playing sport, particularly cycling and surf-skiing.
In our business, success is when you can consistently find the ever elusive Alpha, and thus build a good long-term track record of returns.
For me that’s an easy one. Being part of a small alternative asset manager, we eat our own cooking, so all members of our team have a substantial portion of our net wealth invested in the funds we manage or advise. For my personal circumstances, our long short equity fund gives me a good balance of exposure to stock-picking, trading, net long exposure to the equity market, and also the ability to make money on the short book. The Zimbabwean equity fund we advise gives me exposure to an attractive (albeit risky) long-term growth story in Africa. Laurium Capital (Pty) Ltd is an authorised financial services provider.
Gavin VorwergGavin Vorwerg | Co-Founder and Portfolio Manager, Laurium Capital
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