It's high growth and high risk.
With India sliding, Brazil tightening and the China bubble fit to burst, investors might have to look further afield for their emerging markets thrills in future.
Like Africa.
I suspect few Fools venture into Africa, at least not directly, but that means they missed out on a pretty rewarding 2010. So could you make a profit out of Africa now?
World Cup winner
I've just picked up on some figures from Dylan Evans, director of global investment markets at specialist South African fund manager STANLIB, showing how well African stock markets did in 2010.
South Africa was top performer, rising nearly 30% in US dollar terms, and the rest of the continent also performed pretty creditably, delivering a little over 12%.
South Africa is the continent's biggest player, with the largest, best researched and most liquid market, and this means it attracts the lion's share of inflows. With 40% of the Johannesburg Stock Exchange in natural resources, the country also cashed in on rampant global demand for commodity stocks.
I guess the World Cup might have helped a bit.
Ghana's oil jubilee
Some of the smaller countries may surprise in 2011. Like Ghana.
It rose nearly 29% last year, just behind South Africa, and this year it will begin pumping from its Jubilee Oil Field, in which Tullow Oil (LSE: TLW) has an interest. Evans says this should transform the small economy into one of Africa's largest oil producers, and Ghana's economy is set to grow 11% this year.
That's even better than China.
And the rest...
Kenya grew 28% last year, Evans says, mostly due to its growing role as a regional economic hub for the fast-growing economies of southern Sudan, Rwanda, Uganda and Tanzania. Banks such as Equity Bank and Kenya Commercial Banks were among the market's top performers, as the country's financial services sector continues grow on the back of its rapidly expanding neighbours.
Mauritius grew 18% thanks to its thriving offshore banking sector, which boasts companies such as State Bank of Mauritius and Mauritius Commercial Bank, plus of course tourism, with growing numbers coming from China and other Asian countries.
Nigeria came fifth, with growth of 17%. An incredible 70% of its stock market is made other banks and financial services, which performed poorly, due to worries about their capital adequacy and bad debts. But the banking sector has recovered, and STANLIB now claims it is among the cheapest in Africa. If you want to invest in Nigerian banks, that is.
Lowly-rated and under-owned
African GDP is projected to grow by a massive 5.6% in 2011, according to the IMF. That compares to 4.3% in Russia, 4.1% in Brazil, 2% in the UK, and 4.2% for the world generally.
Africa isn't entirely dependent on the West and Asia for growth. It grew by more than 4% in both 2008 and 2009, when the global economy was on the brink of recession. This could work in Africa's favour by protecting it from any further turbulence in developed and emerging markets. Despite these attractions, Evans concludes that African stock markets are "relatively lowly rated and under owned".
Where's the beef?
So that's the bull case for Africa. Are you convinced? The continent is still, in large part, a play on commodities. Zambia, for example, has benefited from the strong rally in copper prices, while may also produce biofuels for China and Brazil. Zambeef has also benefited by supplying meat and dairy products to major local markets, including Nigeria.
Whether that attracts you depends on whether you think the commodity bull run has further to trot, or whether it has run out of puff.
Offshoring
There are several specialist African offshore funds to choose from, but as you might expect, performance has been highly volatile. STANLIB Africa Equity is up 14% over the past 12 months, but down 52% over three years. STANLIB South Africa Equity rose 18% over one year, but fell 26% over three years.
Similarly Investec Africa grew 29% last year and fell 18% over three years, while Imara African Opportunities is up 21% over one year and down 29% over three years. This fund also has a five-year track record, during which it returned 37%.
JPM Africa Equity, launched in May 2008, grew 33% over the past 12 months, or you could try UK-based unit trust Neptune Africa, which was launched last August.
If you prefer low-cost trackers, you might want to research iShares MSCI South Africa ETF, which has a total expense ratio of 0.74% (compared to 1.85% on Neptune Africa).
Personally, I don't feel a great urge to race into Africa. Especially with South Africa trading on a P/E of 19, and commodity prices looking toppy. For me, it could still be a frontier market too far.
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