Can Africa Make Your Portfolio’s Soul Glow?

by The Wall Street Geek on December 3, 2012 · 5 comments

Eddie Murphy’s 1988 movie “Coming to America” famously stereotyped two locations: Long Island City (in Queens, NY) and Africa.

Long Island City has come a long way from the rat trap where Eddie Murphy (Akeem) and Arsenio Hall (Semmi) lived.

But is Africa still the exotic expanse of endless plains filled with wild animals and despotic rulers?  Or has it also come a long way?  In fact, has it even begun to emerge as a serious investment opportunity for individual investors (instead of primarily governments and institutions like private equity)?

Classic risks with investing in Africa have included:

  • Political Instability and Ongoing Armed Conflicts
  • Economic Instability (lately due to Eurozone issues)
  • Trade/Supply Instability (lately impacted by Arab Spring)
  • High Dependence on Commodities
  • Undeveloped Infrastructure

But what’s happening now?  Unfortunately, getting specific and accurate data on each of these is still a challenge (and yet another risk for investors).

However, the World Bank maintains social and economic indicators for Sub-Saharan Africa.  These imply:

  • Increased organization among government finances
  • GDP stability (in particular, after the 2008 recession)
  • Struggles with exports (likely due to regional instability)
  • Increasing economic diversity (yet still highly dependent on commodities)
  • Improved infrastructure – largely due to investment by China

Trends over the last decade have been favorable.  Despite this progress, Africa still has a way to go to become a stable place for Main Street investors.

The tremendous health crisis alone causes concerns about stability.  For example, one of the health statistics that the World Bank tracks – the prevalence of HIV in people ages 15-49 – is striking when compared to the rest of the world:

Nevertheless, Africa has been coming up more frequently as an opportunity for individual investors looking for return. Compare the Dow Jones African Titans 20 TR (DJAFKT – +64.81% since established in 2006) to the Dow Jones Industrials (DJI – +18.62% over the same period) and the Dow Jones Global Titans (DJTT – -5.07% over the same period):

As a result, keep an eye on Africa.  If you profit, perhaps you can hire Randy Watson and his band at your celebration.

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Price CapitalAfter turning $1100 into $7015 in the stock market right out of college, Michelle worked 15 years on Wall Street at Morgan Stanley, Citigroup and Goldman Sachs. She wrote "How to Buy Stocks Online", and is a fee only financial advisor providing investment help in New York City.

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