Agegelabs

There was an article in yesterday’s FT suggesting that the term emerging markets is obsolete. Whilst the article makes some valid points, I disagree with Marko Dimitrijevic when you think about emerging markets in the context of Africa. I address those points below:

Even though emerging markets have very large economies, the common misconception is that they have fairly small, illiquid, and volatile financial markets

Emerging markets comes in different shapes and sizes. Apart from South Africa and Egypt, liquidity remains very limited across the continent. To some extent, liquidity was responsible for the closure of the New Star Africa fund in December 2008. It is also why there are very few traded funds focused on Africa (at least in UK). In my experience, the funds tend to have a more general emerging markets theme, rather than focus on Africa only.

Another argument against emerging markets is that they are too volatile and have unstable, unpredictable governments that leave them susceptible to coups or revolutions

It is fair to say that political environment is improving but things remain tense in certain parts of the continent. That itself could be a motivation to invest – high risk, high return (or total loss).

Two other popular knocks against emerging markets is their reputation for poor corporate governance and less market-friendly government policies

South Africa and Egypt stand out for good corporate governance relative to the rest of the continent. I still find that listed companies in Nigeria and Ghana still don’t provide annual reports on their website or the latest annual report is out of date. I would think that’s the first box on the corporate governance checklist.

Whilst Africa as an emerging market has come a long way – there is still some work to be done in terms of increasing liquidity in market and improving corporate governance. This will be helpful for both local and international investors.