Devaluations needed to unlock African investment

Africa mapForeign investors are waiting for currency devaluations in countries such as Nigeria before committing funds to African equities.

Johannesburg-based fund manager Paul Clark, who made the claim, warns that redemptions from African equity funds could continue while currencies such as the Nigerian naira and the Egyptian pound are overvalued.

“If you believe there will be devaluations, you won’t rush to invest in Africa,” says Clark, who works for Ashburton Investment. “There are good investment opportunities in both Nigeria and Egypt, but the question is what is the catalyst to unlock the value. We might need to see currency devaluations first.”

Clark estimates that a devaluation of 10% in the Egyptian pound would bring it to fair value. Exotix Partners, a specialist emerging markets manager, has predicted a devaluation of a quarter in the naira is “imminent”.

Besides the potential devaluations, low commodity prices are discouraging potential investors in African equities, who believe the continent is chiefly a play on mining and oil stocks. As a result, Clark says African equity funds have suffered constant redemptions in recent months.

Funds Global MENA interviewed Clark as part of a South Africa special report, appearing in the spring issue, to be published in March.

©2016 funds global mena

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