Index provides for opportunities in Africa
According to the World Bank, the East Asia and Pacific region, including China, will grow 6.3% in 2018, making it a favoured emerging market among global investors.
However, Maurice Madiba, CEO of Cloud Atlas Investing and creator of the first Pan Africa ex-SA Exchange Traded Fund (ETF) — the AMI Big50 — believes more attractive returns are available closer to home.
“Following various political changes and structural reforms across the continent, significant opportunities exist in Africa, which offers some of the highest growth markets globally, particularly in East Africa,” says Madiba.
Tanzania’s economy grew 7.1% in 2017, with both Ghana and Ethiopia expected to grow at rates above 8% in 2018. While predications for sub-Saharan Africa are more subdued, at 3.4%, the World Bank believes the region (excluding SA) could rise above the emerging market and developing economy average by 2027.
“The prolonged global commodity slump forced Africa to diversify. The market is now poised for a bull run over the next 15 years, offering significant upside as African equities are undervalued. Africa’s high population growth, which exceeds that of Asia-Pacific and China, will also fuel growth in key consumer-driven sectors.”
Despite this potential, Madiba says these markets remain largely inaccessible and untapped due to the perceived risks.
BYPASS BARRIERS
“Investing in Africa has traditionally been confined to active asset managers and institutional or high net worth investors due to the fees associated with this exposure. That’s why we designed this custom index — to bypass these barriers to entry.”
Following its listing in April 2017, the AMI Big50 offers retail investors easy, lower cost access to the top 50 listed companies in Africa outside SA. “The investment is de-risked through diversity, as the ETF spans 15 markets and a range of industries, including banking, industrials, telecoms, retail and mining, and is safer due to regulation under the Collective Investment Scheme Control Act,” says Madiba.
The ETF allows for more efficient deployment of capital in and out of Africa following changes to exchange controls announced in February.
“The Reserve Bank increased foreign exposure allocations for pension funds from 25% to 30% and other institutional investors from 35% to 40%. The allocation into the rest of Africa, however, doubled from 5% to 10%. Through the AMI Big50 investors can take advantage of the offshore investment dispensation without impacting offshore limits,” says Madiba.
SARS also added ETFs to the list of approved tax-free savings vehicles, further driving the popularity of ETFs among mainstream investors. “We’ve seen a number of ETFs list since 2017, yet of those currently available in SA, only the AMI Big50 caters to the unique opportunities offered in Africa.”