Investment Advisor: Sanlam Investment Management (Pty) Ltd

(December 2012)



You have recently taken over the Fund investment advisory role. What is your current strategy?

We will be looking at taking tilts in line with our fundamental in house research and conviction. We’re an active manager and not benchmark agnostic and our views will therefore be reflected in the portfolio.


The Egyptian market has seen a turnaround in its fortunes this year following an awful 2011 and in recent months has been one of Africa’s best performing markets. Do you think investor confidence in Egypt has completely returned?

We took a strong positive view on the Egyptian market for 2012 as we felt the market correction in 2011 had been overdone. Results show that this was the correct view as we have seen a rally (+50% as of the end of October). We believe there are further opportunities in Egypt for the next six months, but we also see positive momentum and attractive valuations in Nigeria and Mauritius.


Apart from South Africa, the continent’s largest and most-developed market, the Fund has significant investments in Nigeria and Kenya. What do these markets offer that other sub-Saharan and North African markets don’t?

2010 and 2011 have been difficult in Kenya and Nigeria despite positive corporate results. We still view Nigerian banks as attractively valued and retail banking valuations are still low compared to developing market peers (below 20%). There is therefore attractive positive momentum to be exploited in the Nigerian market. Kenyan corporates have done the right thing in the past year by diversifying in the East African region and should benefit from this hedging strategy.


Foreign direct investment (FDI) into Africa has been growing rapidly in recent years. How has, or will, this increased FDI feed through to local stocks and markets?

FDI into Central Africa and North Africa has been very strong in the last decade and focused on industrial and resources investments. This continues to produce very positive feed through effects to the wider economy and will continue to push GDP per capita upwards. This in turn will have a positive effect on capital markets with improving annual GDP growth.


Intra-African investment has also risen sharply in the last five years. How large an impact has this had on local markets and do you see this trend continuing in the near and medium-term future?

One such positive for African economies has been the improving integration of African corporates, such as Dangote Industries across Africa and Coop Bank across East Africa. This has allowed for the hedging of country specific risk and the chance to draw on opportunities across a continent which overall is growing faster than most other regional blocks.


Many African markets are seen as having relatively-low correlations to global markets. How true is this and to what extent have African markets therefore been shielded from the effects of the financial crisis?

A historic comparison of African markets and many developed and other emerging markets confirms this low correlation. We expect this trend to continue going forward, enabling investors to diversify away regional frontier market risk.


Corruption, political instability and asset security are often cited as reasons to avoid investing in Africa. What would you say to an investor who has left Africa out of their portfolio for one or all these reasons?

Political risk and corruption has been reduced dramatically in the past 20 years. Regime change via a military Coup d’Etat is now a rarity rather than the norm. Improved governance has seen Africa’s deficit to GDP reduced significantly in comparison with pre-1990 data and led to improved foreign reserves and credit ratings. We have no reason to expect this trend to reverse.


The World Bank has ranked some African countries among the world’s top business reformers over the last five years. What further reforms are planned in the markets the Fund invests in that will improve the business and investment environment?

The most recent World Bank Ease of Doing Business survey shows that some of Africa’s laggards are catching up in their reform processes. This is a positive step towards aligning development processes in various countries, acting as an accelerator in moving their economies forward. Regional integration and streamlining of countries’ common infrastructure development strategies should also bode well going forward.


What do you see as the prospects over the next six months for the economies and markets in which the Fund invests?

The next six months should be supportive from a valuation perspective. We believe the prospects for these markets are very positive with a continuing clear decoupling of African markets from negative trends seen in developed western markets. We have a positive view on regional trade and resources supporting these markets going forward.


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