Unleashing African Equities — Fund Manager Perspective

LAGOS, Nigeria, Capital Markets in Africa: Confident in the positive prospects embedded into Africa’s long term development, our team has been working on the best way to access the latter for almost a decade. In this purpose, one should be aware that intrinsic risks related to the region’s political and economic situation make the definition of an investment strategy relatively complex, especially when taking into account the features of the continent’s capital markets such as liquidity or FX volatility, to name a few. Consequently, our philosophy as institutional investors is to secure our exposure to Africa’ buoyant growth by basing our decisions on reforms which are likely to turn “a great potential” into tangible earnings.

From infrastructure investments, to social, fiscal and macro-economic policies, there are a wide range of measures needed to insure the fast growing-population and natural resources locally available become reliable drivers for sustainable growth in the long run. Thus, when assessing investment opportunities, we pay a particular attention to countries whose economic development appears structurally viable whilst we look for companies well positioned to benefit from fundamental changes in their respective industry. Although there is an obvious cyclicality driven by global markets dynamics, risk appetite for EM / frontier markets and commodities, our approach has been successful in both bullish and bearish cycles when we look at our long-term performance.

More recently, the fall in commodities prices of the recent years has been a clear reminder to African nations that they have no choice but implement reforms should they wish to (1) shield themselves from external shocks but also (2) answer their own social and economic needs. This is well illustrated by the difficulties Nigeria, Angola and Ghana are facing today, and unveils how fragile the so called “growing middle-class” story is. Indeed, we have always been concerned by the misinterpretation of growth potential and subsequent risks of disappointment once markets realise the boost to domestic earnings over 2010/2013 (mostly based on consumption) is not sustainable once the “easy money” from the commodity rally disappears. In our opinion, the latter theme has acted as a double-hedged sword by turning investors perception of the continent to over bearish today, from over bullish back in 2010/11, whilst fundamentals have always pointed to a more balanced approach. This is exacerbated by political instability, poor visibility on the regulatory environment, unwillingness to push for “painful” macro adjustments that, overall, constitute a source of concerns for any investor willing to deploy capital into the region.

The mismatch between growth realities and equities valuation backed by the markets will continue to be part of the environment we invest in and remain a threat to our short term performance. However, we believe it also offers attractive returns in the medium to long term should one focus on “reform-led growth stories” whilst keeping an eye on conjectural developments affecting returns. For this year, we expect the dynamics seen in 2015 to continue to play out: on the one hand, net commodities exporter suffering, with business troubles spreading to most sectors of their economy; on the other hand, net importers benefiting from the low commodity price environment. Nonetheless, countries which have moved faster in social and economic measures aiming at driving a turnaround should perform much better than those not having done their homework. That said, our base case could be materially impacted by the pace and extent of any recovery or further weakness in commodities prices.

To sum it all up and finish on a constructive picture we think is real, African markets are going through a tough period which started in late 2014 – early 2015. Although the situation changes significantly from one country to another, we believe the upcoming months are likely to show new developments that will unlock some opportunities – not available a few years ago – which we are ready to seize in order to strengthen our portfolio.

Contributor’s Profile:
Andy Gboka’s (Portfolio Manager, Bellevue Asset Management) roots lie in West Africa and therefore, having grown up in Ivory Coast as a dual French citizen, he has intricate knowledge of the local business environment. The experienced Sub-Saharan expert joined Bellevue Asset Management as a senior analyst / portfolio manager for the BB African Opportunities Fund at the beginning of 2015.From 2011 to 2014 Andy Gboka was with Exotix LLP in London as a Senior Analyst covering listed African companies in the brewing, cement and industrial sectors. Prior to that, he spent three years at Société Générale’s Corporate and Investment Banking unit as an Equity Analyst. Andy Gboka earned a Master’s degree in finance from the Bordeaux Management School BEM and he is a Chartered Accountant.