INVESTMENT FOCUS-Africa investors see through the headlines

Nov 7 (Reuters) - Ebola, terrorism and political upheaval - headlines from Africa over the past year seem a far cry from the inspiring 'Africa Rising' story. But many newly found investors are sticking with the plot.

Even against the additional headwinds of falling commodity prices and the prospect of higher U.S. interest rates, funds active in sub-Saharan Africa insist they still see a compelling growth story, driven by an uptick in regional trade, growing investment and a bulging middle class - the basis of the 'Africa Rising' thesis.

"The most consistent growth that we see across the globe seems to be coming from Africa," said Boston-based Asha Mehta, who manages Acadian Asset Management's $380 million global equity frontier fund. "And it's likely to play out over the next five to 10 years."

Emerging markets at large have had a torrid couple of years, fearful of a cresting of China's economic boom and higher U.S. interest rates. The more esoteric frontier markets typically weathered this storm, however, as they drew in a different sort of investor - one more atuned to diversification, tolerant of higher risk and locked into long-term themes.

More at:

http://uk.reuters.com/article/2014/11/07/africa-investment-idUKL6N0SX31120141107

 

 

Politics, not economics, is at play

Unconventional policy in the developed world can wreak havoc in the emerging markets, but there is a way to fight back, according to Joseph Stiglitz, the Nobel prize-winning economist.

Speaking at an economic policy dialogue hosted by the department of trade and industry, Stiglitz said that, instead of focusing single-mindedly on inflation targeting, primarily the role of central banks, South Africa's macroeconomic policy should also concentrate on employment, growth and financial stability.

The South African Reserve Bank has used inflation targeting for 14 years and has allowed the exchange rate to act as a shock absorber, the bank's outgoing governor Gill Marcus has said. Last week the Reserve Bank held a conference in Pretoria – "14 years of inflation targeting in South African and the challenge of a changing mandate" – which reaffirmed the bank's position that inflation targeting had been effective and positive.

Economic development
But Stiglitz said exchange rate policies were key in protecting the domestic economy from global spillover and for boosting economic development.

South Africa's view on the exchange rate was to "leave it to the market", he said. But, because of the nonmarket intervention policy of the United States Federal Reserve, it spent $3.5-trillion in buying bonds. "It's no longer a market phenomenon, it's political.

"Should your exchange rate be decided in Washington or in South Africa? One has to countervail others' policies, otherwise you will be a victim of them," Stiglitz said.

In South Africa, views on policy directions in the government can be notably divergent, with the Reserve Bank and the treasury often in one corner and trade and industry and economic development in the other. In trade and industry it's broadly held that an extremely volatile currency and a high exchange rate impose serious constraints on manufacturing and exports in particular.

Quantitative easing (QE) in the US saw cheap money being pumped into the global economy, which flowed to emerging economies that offered higher yields. But with the programme having ended this month, interest rates are likely to rise, money will continue to leave emerging markets and, in South Africa, cause further volatility in the rand and deter investment in job-creating sectors.

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http://mg.co.za/article/2014-11-06-politics-not-economics-is-at-play