Amid market uncertainty in the U.S., more and more investors are purchasing stocks from companies based in Kenya, Ghana, Zambia and other nations across the continent of Africa.
A recent report from the Institute of International Finance showed that stocks and bonds issued from frontier markets, or counties whose markets are too small or underdeveloped to be considered emerging, reached record highs in 2017. Capital flows jumped to nearly $141 billion in that year alone, according to the report.
Africa, in particular, has become a hot spot for fund managers to invest their money.
“Overall, we are positive on Africa and have incrementally added to our positions there as the outlook has kept improving through the last year,” Pradipta Chakrabortty, the portfolio manager for Harding Loevner’s frontier emerging markets strategy, told Yahoo Finance.
U.S stocks since have gone cold in 2018 while frontier market equities continue their strong upward trend, the news site reported. For instance, MSCI’s frontier markets (FM) index has grown 6 percent year to date, while the U.S. S&P 500 has fallen about 1.2 percent.
Data by asset management company eVestment also revealed that institutional funds flows to U.S. stocks fell by more than $106 billion in just the fourth quarter of 2017. Meanwhile, institutional fund managers poured a combined $2.5 million into African equities during the same time period.
So what exactly is drawing investors to the Motherland? Investors said they enjoy African stocks because they allow diversification in addition to the opportunity for “home run,” or huge capital gains in a short time span. Also, companies located in sub-Saharan Africa are less likely to be impacted by political risk stemming from headlines surrounding President Donald Trump.
“This is the year for sub-Saharan Africa,” Josephine Shea, emerging markets debt senior portfolio manager at Standish Mellon, told Yahoo Finance.
Shea added that she is positive on African and frontier market debt as a whole, but has remained selective in her allocation. By the end of 2017, the total debt issued by frontier markets reached almost $800 billion between corporate institutions and governments. Fund flows to African bonds continue to grow, however, signaling positive prospects in the future.