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African stocks offer untapped opportunities

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By Mark Jewell
Saturday, March 30, 2013, 12:01 a.m.
 

BOSTON — If there's a last frontier for U.S. investors, it's Africa. The world's second-most-populous continent is an afterthought for anyone looking to construct a diversified portfolio of foreign stocks.

Consider that there are just two mutual funds specializing in African stocks, compared with more than 100 focusing on Europe. About three-dozen focus on China. So much for the vast African continent and its underground wealth from oil, minerals and metals.

Another sign of Africa's low profile is the dearth of information about the stocks of its top publicly traded companies. Check the business pages of a newspaper or an investing website, and it's relatively easy to find data on the performance of indexes from most foreign countries or regions. But you'll probably have to look elsewhere to find references to the few African indexes, such as the MSCI Emerging Frontier Markets Africa or the Dow Jones Africa Titans 50.

“It's probably the world's last great untapped market,” says Derrick Irwin, co-manager of the Wells Fargo Advantage Emerging Markets Equity fund (EMGAX).

In a recent interview at his Boston office, Irwin discussed the risks and rewards of investing in Africa. Here are excerpts:

Q: What are Africa's key strengths, from the standpoint of U.S. investors?

A: There's huge growth potential. The top five African economies have more than 400 million people. Across sub-Saharan Africa there are more than 425 million cellphone subscribers.

Q: As an American consumer, I don't see any African brand names on the shelves, or any visible indications that African companies have a substantial presence in the global economy. Am I missing something?

A: It's there, it's just that Americans don't see it. A lot of the trade with African countries is with other emerging markets in places like China, India and Turkey. That trade has increased about tenfold over the past decade.

Q: What advice would you offer to an investor looking for specific exposure to African stocks?

A: You can't just rely on the financial statements that companies issue. You have to understand how these businesses operate, and where the opportunities are. It's probably more important in Africa than anywhere else to spend time on the ground, kicking the tires. It takes so much due diligence if you're investing directly in Africa, rather than through a mutual fund.

Mark Jewell is a Personal Finance Writer for the Associated Press. Email him at investorinsight@ap.org

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