I’m looking for a safe haven for my money. It isn’t easy. Things seem to be getting worse and worse in America.
The International Council of Shopping Centres reported that retail sales fell 1% overall last week. Target (TGT), the second-biggest US discount chain, cut its forecasts for September sales to 1.5%-2.5% from 4%-6%.
There was worse news for property. The S&P/Case-Shiller 20-city index reported that prices fell by an average of 3.9% year-on-year. The index fell on an annual basis in January for the first time, and has fallen every month since. Fifteen of the 20 cities saw declines, with the largest in Detroit, down 9.7%.
Anyone who thinks global property or US shares are always a good long-term bet should hotfoot it over the Atlantic now. I won’t be joining them.
Then there is Europe. Ireland and Spain have been responsible for about a quarter of Europe’s growth in the past four to five years, but now the main drivers – building and buying houses – are in mid-collapse.
At the same time there is little real evidence to back up the optimistic view that the European economies and markets have somehow decoupled from America’s. They haven’t: 15% of EU exports still end up there.
“Decoupling” is a buzzword in Asia too. Here there is evidence that domestic economies can thrive independently, and it is certainly true that given the choice between an American fund and an Asian fund, I’d take the latter in a heartbeat. But I still don’t think there is any way Asia can escape a US recession unscathed. America may no longer be the only engine of global growth but it is still the main one.
So where can you find a market that is genuinely uncorrelated with the rest of the world? The answer, counter-intuitively, is Africa. Since I last wrote about investing there in February, the headline news on the continent has been as unremittingly miserable as usual. But behind the scenes the economic fundamentals have just kept getting better.
GDP growth across the region has been rising fast (well above 5% in 2005 and 2006 and a forecast 6.8% this year) and is expected to keep doing so. This is partly down to the commodities boom and to the continent’s new best friend, commodity hungry China. Sino-African trade hit $55.5 billion (£27.4 billion) last year, up 40% from the year before, and China has now directly invested more than £3 billion into Africa. This is not just upping average incomes but rebuilding roads, railways, ports and schools across the continent.
But the boom in Africa isn’t just about China; it’s about increasing political and financial stability (which makes the region “investable”). Note that two African countries – Libya and Algeria – actually make it onto the World Economic Forum’s list of stable economies.
It’s also about soft commodities. There has been much hand wringing about how urban Africans will suffer from rising food prices and they probably will. But let’s not forget that the majority of poor Africans are still farmers.
So rising prices will surely bring them rising incomes, perhaps even some surplus income.
And as a welcome side-effect this might encourage them to stick with trying to make money from the land rather than migrating to cities that aren’t yet ready for them. It’s just a horrible shame that Zimbabwe, once one of the biggest exporters of grain on the continent, is missing out.
Africa’s renaissance is also about other noncommodity industries. The tourism, telecoms and financial sectors are expanding fast, as are the many companies providing things such as soap, chocolate and beer to people with a tiny bit more spare cash than a decade ago. It’s also worth noting that the fastest-growing economies are very often those that have little or no commodity exposure – Kenya, for example.
And the best thing of all? History shows that African markets move with very little reference to global markets. They are, says Mark Foster-Brown of Altima Partners, utterly uncorrelated to other financial markets, a characteristic not to be sniffed at “in the current environment of total correlation” of everything else.
So how can you get in? It isn’t easy. In February, I suggested buying shares in AIM-listed Lonrho (LONR), which has investments across the continent in everything from water plants to airlines and which seems to make a new deal every week. The shares are up 40% since then and I still like them (they are in my pension) but, given the speed of the company’s expansion, they don’t necessarily make a safe haven.
The good news is that in the past few months a few funds that give the retail investor access to Africa have appeared on the market. Most interesting of the lot is Charlemagne Capital’s Magna Africa Fund. This has raised well over £40m since its launch only three months ago, and probably for good reason – it is one of the few Africa funds that doesn’t come with an absurdly high minimum investment, while Charlemagne has an excellent record in local emerging markets.
Otherwise, coming soon is the New Star Heart of Africa Fund to be run by Jamie Allsopp. Those who can’t wait for that launch might look at Allsopp’s UK Hidden Value Fund, which already has large Africa-related holdings, including shares in Lonrho.
First published in The Sunday Times 20/9/07