Africa and Russia represent some of the best investment opportunities for funds considering emerging and frontier markets, Danish pension funds heard.
Speaking in a panel debate at the Pension Fund Forum in Copenhagen hosted by GP’s parent company Incisive Media, Danske Bank chief analyst Lars Christensen said frontier markets would follow the same “explosive” growth enjoyed by today’s emerging markets, with Africa leading the way.
However, he said investment opportunities on the continent were currently limited.
He added: “To me, frontier markets will be the next wave of interest. There is a lot of interest in Africa and I believe that will continue. It will be the most interesting emerging market story over the next decade.
“The problem at the moment is there’s no market. How do you invest in Uganda? Right now your best bet is to fly over there with a suitcase full of dollar bills, but for most us that’s not an option. There are opportunities coming through however. Africa is still risky but makes for an extremely interesting growth story.”
Nordea senior strategist Henrik Drusbjerg said while the growth of emerging markets over the last 10 years had been dramatic, many investors were still below the 15% MSCI World benchmark position.
He added that while Africa and other frontier markets such as Pakistan, Iran and others suggest strong economic futures, it was still very difficult for investors to access markets there.
“When you look at what they should be as a part of your investment they are extremely small markets,” he said.
“Africa is twice the Danish equity market and if you remove South Africa you are left with approximately the size of the Danish equity market, which is about 0.5% of MSCI World. It’s a very small exposure.”
He also claimed opportunities were becoming harder to find, with fewer emerging economies offering the four key elements which made them a sound investment.
“The last decade has been good due to four key values,” Drusbjerg added. “When you invest in emerging markets you’re looking for better fundamentals, attractive valuations, higher EPS (earnings per share) growth and undervalued currencies.
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