Corporate Finance : Hot money flows a myth in Africa

Global investors are stepping up the flow of capital to Africa’s frontier markets, according to a broker who takes orders from pension funds and insurers for $100 million or more. “All of the orders we get are to buy shares in African companies, and none are to sell,” says Jonathan Auerbach, managing director of Auerbach Grayson, a New York-based broker with direct access to 123 markets worldwide. “There is a significant amount of passive pension fund money seeking exposure to Africa’s growing economies,” he says.


Pension funds and insurance companies want portfolio diversification and the chance to participate in growth opportunities, Auerbach points out. “The flows are not research-driven, but exposure-driven,” he says. “The term ‘hot money’ is more of a cliché than a reality when applied to Africa,” he adds. “Most of the equity markets on the continent are dominated by local investors.”


Last year’s initial public offering of Kenya-based mobile phone service provider Safaricom attracted 750,000 individual buyers. The company was forced to rent a stadium for its annual meeting.


Oversold local currencies and low price/earnings multiples make this an ideal time to invest in the resource-rich continent, Auerbach says. When global growth resumes, Africa will lead the way, he predicts.


—Gordon Platt

 

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