By: Cavan Osborne, a portfolio manager at Old Mutual Investment Group (OMIG)

As the dust settles around the outcome of the 2024 United States (US) Presidential Elections, global investors are considering their stance on geographical exposures. This will have specific implications for emerging and frontier markets, especially when it comes to the African continent.

While the jury is still out on what a four-year Donald Trump term might mean for Africa, historical trends suggest that a pro-business climate in the US generally boosts global equity markets – and many in Africa remain hopeful that renewed US-China trade tensions could create opportunities for the continent. This is according to Old Mutual Investment Group who believe that African equities are offering increasingly positive opportunities.

“Africa is the most attractive it has been in 10 years; valuation metrics are low – and having just come through a big currency depreciation period, we can look forward to a period of currency stability ahead,” says Cavan Osborne, a portfolio manager at Old Mutual Investment Group (OMIG).

For South Africans, the local versus offshore asset allocation debate has typically focused on how much of their capital to invest in developed markets such as the European Union, Japan, the United Kingdom, and the US. This approach potentially ignores the return and value windfalls on offer from Africa ex-SA.

“SA serves as a gateway for capital and investment flows into the rest of Africa. As a gatekeeper to this market, OMIG directs investors into the best Africa opportunities, whether in listed or private markets,” says Osborne. The asset manager keeps a close eye on goings-on at the major African bourses, which include Egypt, Morocco, Nigeria, and Kenya.

After South Africa’s JSE, Egypt is the second most active bourse on the continent, trading around US$60 million per day compared to $10 million in daily volume in Morocco and Nigeria, and just $2 million per day in Kenya.

Investors can also access the Africa investment story through businesses that operate on the continent but are listed on more active offshore exchanges. Examples include JSE-listed MTN; Airtel Africa PLC, which is listed in London; or Commercial International Bank, Egypt’s largest private bank, also listed in London. Resource businesses tend to favour the developed market exchanges too because capital raising is so much easier.

Telecoms is a standout sector for investors seeking exposure to the Africa demographic trend. “At an industry level, we think that select telcos offer attractive valuations and real growth prospects; African operators have access to growth through mobile money solutions as well as data as smartphone penetration increases,” Osborne says. The portfolio manager’s favourites include Senegal-listed Sonatel, which operates in five French-speaking countries in West Africa, and MTN, which has listed subsidiaries in Ghana, Nigeria, Rwanda, and Uganda.

Global investment themes continue to influence listed market return prospects across Africa. The ongoing Russia-Ukraine conflict and various structural inflation drivers have sent raw material prices spiking, making for a tough environment for firms in the consumer staples sector. Despite this, OMIG has its sights on a couple of Egyptian consumer opportunities through dairy producer Obourland and snack maker Edita.

Global allocators of capital still prefer private markets for their Africa deal-making. “Private markets in many emerging and frontier markets offer greater flexibility than regulated markets; high net wealth investors favour the private markets because when there are currency liquidity problems, private investors are able to access alternative channels to repatriate their investments," Osborne says. Private investors can also potentially benefit from more sensible tax arrangements in off-exchange transactions.

Although many investors prefer South Africa as a gateway into investing in Africa, particularly for historically English-speaking countries in sub-Saharan Africa, there are other alternatives. Morocco is popular as a starting point for investments into many of the French-speaking countries in North and West Africa, while Kenya offers access into East and Central Africa. Some also consider Mauritius as an alternative gateway, offering the potential for tax efficiency.

On a world view, balanced fund or multi-asset fund managers typically advocate for a maximum of 30–40% exposure offshore for South Africa-based institutional investors, with the bulk of this exposure still being in developed markets.

“Regulation 28 previously had a specific allocation for Africa of 10% of a pension fund; since 2022, this allocation was scrapped, and the general offshore allocation was increased from 30% to 45%,” Osborne explains. This shift resulted in less institutional interest in Africa today than previously, as evidenced by the outflow from Africa (excluding South Africa) listed markets over 2023 and 2024.

But Africa’s sun appears to be rising. The continent offers exposure to the most exciting demographic trends in the world: populations are expanding, and economies are growing as people move from rural to urban settings. Investing in Africa can also be a sensible portfolio diversifier as Africa’s listed markets have low correlation to world markets; at extremes, the correlation inverts – as world markets go up, Africa goes down and vice versa.

“Africa offers some of the world’s biggest opportunities in renewable energy in addition to access to commodities needed for the global energy transition,” Osborne concludes. “Investors can benefit from attractive fixed income opportunities thanks to most countries offering high bond yields, with the caveat they hedge the currency risks appropriately.”