When I was a young man starting my career, Asia was the continent of growth and opportunity. That’s why I came here in 1996, and haven’t left.
I believe Africa will be the new Asia. In the past decade, 7 of the world’s 15 fastest growing economies have been in Africa. Post-pandemic, there’s no reason this won’t continue.
The UN projects that total consumption in Africa will triple by 2060 and quadruple by 2100. Moreover, this will coincide with America’s, and Asia’s total consumption eventually peaking and declining.
These are long-term trends that will continue well after I am in my grave. But, part of my motivation is to invest today for what I think the world will look like tomorrow – when my daughters, (5 and 1), enter the prime of their lives.
I am thinking intergenerationally. Had my parents invested in Asia when I was young, they’d have built a fortune. I lived as a child in Singapore in 1980-1982. Even buying a modest apartment there, then and simply hanging onto it, would have turned $100,000 into millions. But that was last generation.
Over the coming generation, Africa will boom. The simple reasons are:
It’s a re-run of the same movie I’ve been witnessing in Asia most of my life.
Over the next 30 years, Africa will go from one in six people, to more than one in four people on earth. Half the world’s population growth over that time – 1.3 billion more people out of 2.2 billion additions – will be in Africa.
But birth rates are actually decelerating, and poverty is decreasing. As happened in places like Japan in the 1960s and 1970s, South Korea in the 1970s and 1980s, and China since 1992, most of the growth will come from healthier, better-educated younger people entering the world force, as today’s generation of African children become productive members of the economy.
They will begin contributing to economic output, rather than being dependent on their parents and the state for nutrition, shelter, healthcare, and schooling. It’s a double boon.
For anyone with even a passing interest in these trends, and for a much better explanation than I can ever hope to convey in a letter, I urge everyone to read “Factfulness” by Hans Rosling.
I promise it will change your view of the world. Poor countries are today doing much better than they ever have before in history. Things are genuinely improving, and the future is bright.
If you rely on the western media, are educated only in a western country, and have limited travel experience outside of wealthy countries, it’s not your fault you don’t know these things. Frankly, the west’s education system does a terrible job educating people about the developing world.
Most people living in wealthy countries continue to believe in an anachronistic, “us” (rich), and “them” (poor) world. And it’s just not accurate.
I’ve lived in developing countries three-quarters of my life. There are rich and middle class people everywhere. And there are more and more of them, in total, in so called, “less developed countries” than there are in rich countries!
I have seen with my own eyes countries in Asia, such as China, which were poor, become relatively wealthy inside one generation, and countries, that were doing ok, such as Singapore and South Korea, become rich.
In my experience, the misconceptions the average westerner or wealthy person in Asia has about what the typical person in a modern African urban centre lives like is quite staggering.
But that’s partly what gives rise to the opportunity.
What’s most interesting to a value investor like me is that despite the bullish long-term story I know to be true from the research I have done, foreign investment capital has actually been flowing out of African stock markets en masse in recent years.
That’s left valuations at very attractive, multi-year lows.
To make the most money in investment markets, you both have to buy low and sell high. Right now, we have a golden opportunity, I believe, to buy low. And if I’m right, there’ll be ample opportunity in future to sell high.
Look how much money has already flowed out of these various “Frontier” funds in the past few years, after a good run following the GFC. (Data in millions of US dollars).
As a result of the latest foreign fund exodus, African stocks are categorically cheap. For example, the Nigerian ETF (NGE on the New York Stock Exchange) is trading on 4x earnings and better than an 8% dividend yield.
Another market leading bank I have personally been buying in Tanzania is trading at just 3 times this year’s likely earnings and pays a double-digit dividend. A multinational cement company I own there yields 14%. And in many other places I look, I see similar bargains to be had.
So, I’m starting an Africa-focussed investment fund.
The core idea for this fund is simple. I want to offer investors outsized stock market returns and diversification benefits, by investing in the most promising markets, and the best companies in those markets, NOT already covered by the MSCI All World Index.
That is, the grey areas on this map…
If you want exposure to 80% of the investable market capitalization of world stock markets (in blue on the map), you can buy an MSCI All Capitalization World Index fund for an annual management fee of just 0.34%.
I cannot possibly compete with that. So to add value, I’m going elsewhere.
As you see, most markets NOT in the MSCI All World Index are in Africa and south/central Asia.
Among these markets, my main focus will be former British Colonies, or Commonwealth countries in Africa. They all have British common law legal systems, and English as the language of law and commerce.
This is deliberate. It allows me, as a native English speaker who is familiar with such a legal framework, the best chance of success. I don’t speak Russian, Uzbek, or Vietnamese, and I am unfamiliar with the legal systems and corporate governance regimes in these markets. I’m sure there’s money to be made there as well. But investing in those markets is just not playing to my own strengths. And my hardworking friends at Asia Frontier Capital already do a good job.
I want to provide you with a valuable, turnkey service so you can participate in high-growth African markets, without having to go out and research them and open brokerage accounts, custody accounts and bank accounts in all these markets yourself.
Of course, if you prefer to do it yourself, that’s OK. I’ll happily point you in the right direction. But, I can tell you from experience, it’s hard work. And it’s costly. Doing on the ground research in Africa – I’ve been 3 times in the past 20 months – is not for the uninitiated, nor for those on a tight budget or timeline.
It is a long-term strategy (5-10 years). I will aim to buy stocks in businesses I think can double their sales and double their earnings on a five- to ten-year view.
With Africa home to seven of the world’s 15 fastest-growing economies, and economic growth rates of more than 7% being commonplace in the past decade, I figure there’s a great tailwind. At 7% growth, things are doubling roughly every 10 years, economy-wide.
Within that, many sectors and companies are doubling much faster.
But I also want to ensure that I buy with a big enough margin of safety to compensate for the risks, both seen and unforeseen. Specifically, I want to find valuations low enough that the multiples these stocks trade at can ALSO double on a five to ten year view.
For example, I’d like to find stocks that may have-traded on valuations as high as 10 times earnings in prior cycles, and buy them now at 5 times earnings, or below.
There is an abundance of African companies in that category right now, thanks to the mass exodus of foreign capital, even before the impact of the COVID-19 pandemic.
But this window may not be open long. And that’s why I believe now is the time to act.
A geographically and sectorially diversified portfolio of African companies that each has the potential to double in size, and double in valuation, all paying healthy dividends, should be a robust and potentially very lucrative investment offering for the next ten years and beyond.
Having already been and put boots on the ground many times and met with several brokers and a dozen or so company managements in Africa, what I am most encouraged by is the relative lack of competition from other investors. I can actually apply the same methods that used to work when, as a young graduate, I first moved to Seoul, to work as a research analyst in the South Korean stock market way back in 1996.
Going to these places that are off the mainstream investment map, observing what’s happening, meeting with people, doing research on the ground and visiting companies can still lead to an informational advantage.
In time, as Africa’s population doubles to well over two billion and its consumer markets triple in size over the next generation, it seems a no-brainer to have at least some investment exposure to this emerging growth story.
If you agree, and would like to be added to my mailing list, or if you are already sold on the idea, based on prior conversations you and I have had, and you want more information on my proposed fund, shoot me a reply: firstname.lastname@example.org.
There are no obligations. And, as should go without saying, I’ll keep all your personal information strictly private and confidential.
And regardless of whether you have any immediate interest in my Africa fund or not, if you haven’t already, feel free to sign up to my mailing list at globalvaluehunter.com.
I expect to send out lots of useful information for investors of all stripes, from time to time, as I progress on this journey.
Until next time,
P.S. Here’s another fun fact. I bet you have no earthly idea of the sheer size of the African continent, when you pull it off a distorted world map and put it in a real context.
The USA, China, India, Japan and most of Western and Eastern Europe can all comfortably fit inside Africa, with room to rattle around.
When I took my friend to Tanzania for the first time last year, having told him about the massive population growth, he turned to me in astonishment and said, “Tim, there are lots of people here, but there’s SO MUCH ROOM.”
That’s one of the principal differences between Africa and Asia. And it’s the reason I love it. Africa is vast, wild, and beautiful. And it’s rich beyond belief. I believe more people are soon going to (re)discover that.