Speaker 0:
Welcome to us AT T V's Round Table on Opportunities in Africa with Me, Joanne Baynham. Today I'm joined by Gregory Smith, global emerging market fund manager. M and G Investments Thabo. Let Laa, deputy chief investment officer, Eskom Pension and Provident Fund

Speaker 0:
and Paul Robinson, portfolio manager Lorian Capital.

Speaker 0:
Greg, I'm gonna kick off with you, Um, give us some feedback or tell us what's happening in the African markets at the moment because when one turns on Bloomberg, you just see headlines like This country is about a default. This country is about a default. Give us a feel for what's happening in the African landscape.

Speaker 0:
Absolutely. There's a lot of doom and gloom about at the moment in the media, but I think one of the most important things when analysing African economies is to first respect the amount of diversity on the continent. 55 countries We've got countries of nearly 200 million people ranging down to tiny island states. We've got oil importers, we've got oil exporters, many, many different countries in circumstance. So you while one country is doing badly, there's always another handful doing well, and I think

Speaker 0:
the important thing to do is also apply several different lenses. If we look closely at 2023 there are a lot of pressures. Food prices are elevated energy prices feeding into some inflationary difficulties and some real decreases in the quality of standard of living.

Speaker 0:
But when we start to step back slightly and you sort of take a five year lens, we we see that the the continent is growing fast and even, you know, there was a negative year of growth during the the depths of the pandemic. But the performance of of many economies is doing well, and in fact, when I look at the numbers the IMF just put out, if we take the top fastest growing 12 economies in the world, seven of them are African and four of those countries have

Speaker 0:
bonds and opportunities for fixed income investors. So if you're selective, there's some really good opportunities. And then if we take an even sort of longer lens, say, a 25 year lense, I think that's where things get incredibly exciting. Over the last couple of decades, there's been massive improvements on the continent in terms of human capital, in

Speaker 0:
in terms of infrastructure and The idea that there's been widespread stagnation is, is is just a myth. It's completely not true. You know, I've been lucky enough to be travelling around the continent for 20 years. I've lived in several countries and when I'm in Dar Salaam or I'm in Gabon and I just see massive changes around me and and that performance, yes, there's a lot more to do. But if you take that 25 year lens, there's been an incredible amount of improvement

Speaker 0:
and then when? When we dare to look forward 25 years. We've got a population of one billion now on the continent and it's going to double to two billion by about 2050. So over the next 27 years we're going to see a doubling of the population. And that demographics alone is is enough to sort of make

Speaker 0:
these claims about this being Africa's century really important. So I think as an investor, while you need to be selective and while you do need to suffer some of the the short and difficult periods you you can't ignore this continent as a place of growth and somewhere to be invested in

Speaker 0:
OK, so Paul for someone who is investing in Africa. Uh, just go back this a billion people to two billion. I think the numbers Greg was giving what's happening to GDP per capita in these regions? Are we growing as fast as the population is growing?

Speaker 1:
Uh, we are. Yeah. Um I mean, I think like Greg mentioned, there's some really high growing countries you're looking at even the the countries that are in the middle range. You're looking at 4 to 5%. Um, GDP growth with populations growing 2.5, maybe 3%. So so you're definitely getting positive GDP per capita growth? Um, I I think I agree 100% with Greg. Um, in terms of it, it's not gonna be a straight line.

Speaker 1:
Um, we we say often to our clients. Um, look, the long term secular trends are definitely still intact. Uh, but there will be some short term volatility. Uh, that is just you have to expect that, and and I think what's not quite appreciated is how tough the last couple of years have been. Covid was obviously fairly tough from an economic point of view. Hasn't been not so much. Maybe from a, um,

Speaker 1:
a human tragedy point of view versus some of the, uh, the West, the older countries, uh, more ageing populations. Um, and these countries were just starting to throw that way their way out of that. And then you had Russia and and that really has been, uh I guess you could see it as as a knife in the wound of Of of covid. So it's been It's been tough. Um, but yes, exactly what Greg was saying. Those longer term trends still very much intact.

Speaker 1:
And what we're seeing right now is is among the best opportunities for investment that we've seen over the last decade. Um, just widespread selling of the asset class. Total disinterest. Uh, so perceived risk for us, I think, is much bigger than actual risk. And you're getting some of the best valuations in terms of equities highest yields on the bonds than we have ever seen. So we we're pretty excited right now. We we fully appreciate that

Speaker 1:
there's gonna be some volatility. Um, it's not plain sailing, but with what we're seeing right now, we we're pretty excited. We we are adding Africa to our both fixed income and equities to our non Africa funds. Our South Africa hedge funds, for example.

Speaker 0:
OK, so top of listening to Paul and listening to Greg one get quite optimistic about Africa from a long term perspective. And, you know, listen to Paul on valuation. What has your experience been in investing in Africa the last five years? And how do you feel about the next five years?

Speaker 0:
Um, we have been investing in Africa, as you said for the last five years. Potentially, I'd say even even longer than that.

Speaker 0:
Um, And, uh, the way in which we're investing is through equities both on the listed side and the unlisted side, Um, infrastructure, et cetera. Um, and I must say that our experience hasn't been a good one. We we've we've been burnt and and so when we think Africa, we think Africa excluding South Africa. We're big investors, uh, locally in this South African, um, context. But when it comes to Africa, we think Africa is the same.

Speaker 0:
Uh, and as I said, we've struggled over the last 10 years, and and really, that's been a story of equities not producing what we've expected. Um, and, uh, and as you said that that's a time frame that's been the last 10 years, including the last five years. And, uh, Paul, a moment ago, just kind of unpacked. Why, that's been the case, especially in the short term, uh, covid and then the the crisis between Russia and Ukraine. So that's that's been our experience. Um,

Speaker 0:
and I must say, our principles, Um uh, as a as as an asset owner, our principles have been, um, increasing have become increasingly bearish. Um, considering our experience,

Speaker 0:
uh, but are still, um, holding on and have asked our investment teams to to relook at, uh, a the thesis south of Africa. And again, I think Paul did a really good job of saying there's a population demographic story there that's positive. Still growing economies. Um, Paul spoke about GDP per capita. Also, we also still see that growing as well. Um, and so and so and so

Speaker 0:
there is a there is. I think it's positive for the the front. Uh, they've also asked us to look at, um, investments specifically. So are you invested correctly? Are you are Should we be in the listed equities? Should we be enlisted in in private equities. Um, uh, can we and should we be in, In, In, In, In private? Um, sorry in things like real real assets, like property and and infrastructure. And so and so what we've done

Speaker 0:
the team of the last, uh, few years is is to really just re look at the way we invest. And, uh, we have now, uh, decided that, um, yeah, adding debt and adding, um uh, credit is is the right answer for us. And so we've gone in and added that both on the listed side and then listed side as well. And so really, that that that that answers the second part of your question, uh, Joe, in saying that we believe that,

Speaker 0:
um, the story is still positive. Um, we are still gonna hold on. Uh, even though the experience has been negative in the past, uh, we still believe that the the experience will be positive going forward.

Speaker 0:
So, Paul, just going back to what Greg noted just now. And he said, You know, Africa is not all the same. It's like one big basket, but there are lots of different countries. I was quite shocked to see the yield spreads in some of these African countries versus Treasuries. Give us some more colour and what you're seeing. And you know, when I see a 10% change between US, Treasuries and Bonds, I think that country's on a default. I'm gonna get my money back. So So tell me what we're actually seeing in that region at the moment. Where are the opportunities? Particularly in Euro Bonds?

Speaker 1:
Yeah, sure. So for us, um, if I just think of our fund, how we're positioned and what we are doing right now, um,

Speaker 1:
there's There's definitely been a Let's call it a bit of a wobble in the last few weeks with more talk of restructuring. We've obviously seen Zambia. We've seen Ethiopia. We've seen Ghana. That's that's old news now. But there's just been a sudden acceleration of restructuring talk for specifically Kenya and Egypt. Um, we've been doing a lot of work on those at the moment, and we

Speaker 1:
we think some of that is overdone. Um, so we are actually we're adding to Egypt short end right now and well, we we have done it, um, over the last day or two and Kenya short end as well So

Speaker 1:
it remains to be seen in some of these countries what the longer term holds for the debt. Um, we think that things will be OK, but there are definitely opportunities in the short term. And and I think that goes back to Greg's point again. Is is in Africa, you can be selected. There's a lot of

Speaker 1:
for want of a better word, using a cliche, throwing the baby out with the bathwater. We saw that in July last year where really, really so solid credits countries that were looking great completely blew out. We sold off completely, and then within a month or two you had 2030 40% upside in their bonds. Um, I'm thinking of like coo Senegal, Angola, et cetera, and I think we're in a little bit of the same situation now where

Speaker 1:
there's no doubt risks have increased in some of those countries. Uh, but we think they are overdone and and you'll be OK, especially on the on the short end on some of those and then the more stable countries we're seeing now, Uh, we like King Coo and Senegal and some of the smaller names that maybe not too many people cover.

Speaker 1:
So again, that's going back to Greg's point. There's a huge universe out there, actually, Um, and you can be selective. And it's not only a beta story, an Africa continent wide beta story, both for equities and for for fixed income. Uh, but there's a lot of alpha to be had as well. Finding finding companies, finding countries that have kind of by and large has been ignored by the by the wider world out there.

Speaker 0:
Let's stay. Oh, sorry. Talbot, please say something.

Speaker 0:
Yeah, absolutely. I was gonna just stay on the poll has the theme Paul just raised, um, which, which, which, Which we're which we're looking at as well. Valuation is essentially, uh, being at levels that are attractive, Um, the and and this is specifically on the fixed income front. So so very attractive entry yield points. Um, and and this has been, you know, essentially a continent wide.

Speaker 0:
Um, and, uh, you know, I I I our our our concern is that it hopefully isn't a bad attract. Uh, we hope that even though yields are attractive that over the long term, um, they actually do pay back their coupons and redemptions. Uh, we hope that you know it. Actually, it actually works out. I think that's that's That's probably our top concern at the at this point in time, because if I kind of rewind back to when we started investing about a year ago, we looked at a year ago and we said, Sure, these yields are very attractive,

Speaker 0:
and so we should jump in At that point in time, we did so and and and now we're a year later and we're saying, you know, still attractive And, uh, unfortunately, as as you as you unpack their poor, um, you know, had stories. Uh, Zambia, Uh, Ghana et cetera. So so and now you're talking about King in Egypt as well, um, joining the list of potential worries and so we are monitoring the same things, but we

Speaker 0:
the concern there being a being a bit of a value trap, um, we hope that we hope that that really does pay off. And I I I maybe also add that, uh, we are a long term investor, uh, as a pension fund, matching our liabilities. And so, um and so we can and and and we do look through the cycle. Um, we're just hoping that, um, you know, the story to 2050 is a positive one. Um, that that everything works out.

Speaker 0:
OK, let's go back to market dynamics, Greg. You said you've travelled all around Africa. Now we hear the argument that it sounds like we've got a contagion taking place in Africa where one country has bad news spreads to other countries. But, you know, some of these countries are better than others,

Speaker 0:
but how deep are there? Are there domestic markets? Because if foreigners are just unilaterally selling and say, I just don't want to be here in in other countries around the world, the domestic market says these yields are too ridiculous. Let's buy what's the depth of the markets like in these bond markets?

Speaker 0:
Um, I think that's a that's a massive barrier to debt sustainability and attracting more foreign flows in that, I think outside South Africa, there's very few countries that can claim deep domestic markets in terms of the amount of money in global E m. And

Speaker 0:
I think there's countries that's tried, you know, Egypt managed to attract inflows into its um into its local bonds but they came in the good times and as soon as bad times come that money left, Nigeria managed a flow of hot money in the years from 2016 up to the pandemic. But as soon as the bad times hit, that money flew out as well.

Speaker 0:
So it's really hard for me. You know, we look at Corporates, we look at sovereign bonds, we look at sovereign local bonds and there's only about four or five markets, um, of size that we we feel that we can invest in on the Euro bond front. There's a lot more options with 20 African countries in the market and that gives us an A an A, a decent attempt at some diversity on the continent. And

Speaker 0:
but But stepping back, I think one of the biggest challenges at the moment is sentiment towards risk assets globally. And you know, one of the problems is there's not enough dedicated emerging market money. Leave alone enough dedicated African investment money and fixed income at the moment. So what's happened is, since you know there was a little bout in risk aversion last year when Russia invaded Ukraine but spread came back down But it's when the feds started hiking last May and and

Speaker 0:
what's happened. Since then, we've had a few ups and downs, but spreads have remained elevated and instead of UM, e m high yield, um, hovering around 5 600 basis points over US Treasuries, it's shot up to 7, 809 100 basis points in some places, which basically prices a lot of countries out of the markets.

Speaker 0:
So you could look at it last June and you could say it looks cheap, but it stayed cheap now for the best part of 56 weeks. So while the valuations are there, you've still got to get the timing right. There just simply isn't enough money in dedicated e m.

Speaker 0:
So until the flows come back. So the the crossover money has come back into I G and I. G E M spreads it down at 1 50 that keeps the M B anchored. But it's this question about high yield that's persisted, and I think until we get a consensus that the Fed is ready to start thinking about cutting rates to start pivoting, we won't get that flow into E. M high yield and therefore we won't see see spreads recover.

Speaker 0:
The good news is that the market is seeing through this cycle and the US 10 years is about 3.3% for 3% which is a little bit higher than the 2.7% we had, say 2016 to 19. We're about sort of 70 basis points up on that. So we are sort of the markets arguing for higher interest rates, but not but not at a level that would would stop African countries coming to the market. So I think what needs to happen is we need this global risk sentiment to improve and then

Speaker 0:
and I think that will help the likes of Ivory Coast, the likes of Senegal that are growing well that are working hard to get their fiscal in order.

Speaker 0:
And then there's a few countries we've mentioned that not only need that flow to come back but also need to sort things out at home. They need to make sure they've got the anchor of an IMF programme. They need to make sure their fiscal is moving in the right direction, et cetera, And in this camp, you, you know Kenya was mentioned, um, Egypt was mentioned. And these are countries that need to sort of secure that international support and deliver on reform. And if they do that, I think market access returns in the next few years.

Speaker 0:
If they don't do that, it's gonna be a really tricky path for them to to get the financing needs they have. Um, you know. So we we're looking through this cycle. We're looking at where valuations are now. But until flows return to emerging markets, I can't see a big shift. And that's something we watch very carefully. And,

Speaker 0:
um, I think something's needed at the very global macro scale before we'll see a sort of marked compression in African, um, yields and spreads. And I think when that happens, there's there's a really exciting, um, rally to be involved in.

Speaker 0:
OK, so Paul, just sticking to this view of like, a long, long, a longer term view on African bonds. But you are being paid to wait, aren't you? You're getting so I think I think Greg mentioned 700 basis points about Treasuries, as in the average. Surely you don't have to wait for liquidity to return. You can just enjoy clipping coupons until such time as the world recovers. Or is it not that simple?

Speaker 1:
Um, yeah. I mean, that is definitely one of the one of the investment stories. The bull cases. Look, what What has happened over the last year or 18 months? Um, you still would have lost money despite those coupons, but it it definitely provides a significant level of comfort. A A. I mean, if you think now again, I am just using an example. Egypt 2032 Bonds trading at about 55

Speaker 1:
cents on the dollar. You're getting roughly 7% coupons. So you you're getting well paid just to sit. And even if there is a, uh, some kind of restructuring, where do you come down to? You come down to 40 cents on the dollar within 18 months? Two years.

Speaker 1:
And yet you've you've picked up 14 15% more on on coupons over that time. So yeah, it's it's definitely a a key part of the story. Your your break even points are much lower than if, for example, a US bond where you're only getting 2% or something like that. Um,

Speaker 1:
and and I think the key there is just long term. Um, we don't pretend we can time the markets. Well, um, we get asked a lot. Uh, it's looking interesting pricing yields, et cetera. But when's the catalyst? What's the catalyst? What's the timing of the catalyst? We just don't know. I think the the catalyst, as Greg says, is those flows.

Speaker 1:
Um, those are quite linked to what's happening in global macro US rates and inflation, but also the reforms, Um, are the Egyptians gonna do the right thing on their asset sales and their currency? Are the Kenyans gonna do the right thing on their currency? Um, and their local rates in, in which case those flows will come much, much quicker. We just don't know when that's gonna happen. So,

Speaker 1:
yeah, to to try time, it is virtually impossible. We don't even pretend we're good at it. So you you just to get that exciting upside that Craig spoke about, you just have to be in it from here. It's It's well worth it from here. Um, there's not gonna be a better time. We think I mean people who can Maybe there are people who can pick the timing better than us. Um, but for us right now, you just got to be in it. And that catalyst will come. Whether it's

Speaker 1:
three months, six months, a year or two years, we're not sure, but it will come.

Speaker 0:
OK, but your point is valuations are very compelling. As we sit here today, and and trying to time things as difficult about valuations are very compelling. So, Tombo, let's get back to you now as a pension asset owner, um, rate 28. Regulation changed in terms of access to a well not didn't stop money going to Africa, but it made it easier to put into other markets. How has that impacted you when you're looking at Africa?

Speaker 0:
Sure. Uh, to recap on rate 28 regulation pension regulation in South Africa. Um, I think the limits were 30% offshore. This excludes Africa. And then you had, like, an additional 10% that you could invest, um, in Africa. So So? So your total African limit would have been 40 but if you

Speaker 0:
we were taking the money offshore, it would be it would be 30% And, uh, recent update like I just said um, that all has been collapsed into one limit. One simpler limit to understand, Uh, essentially saying 45% of all pension assets can be invested. Um, uh, X s a outside of South Africa. So in Africa, or or or or globally, um, has that changed how we view Africa? I would say not. Not not, uh, not No, not really. Um,

Speaker 0:
we still kind of have viewed it relative to what we're trying to achieve from an investment return perspective. Um, relative again, to our to our liabilities. Um, And I would also say that with respect to just to kind of our appetite globally, yes, we have started,

Speaker 0:
um, investing a little bit more in sympathy with this increased limit. But again, we're not doing it at an alarming, uh, pace at all. Um, I I I would say that we we we're going relatively slowly. Um, even though the the increase essentially has jumped from what, Let's say 30 plus 10 to to 45%. And so and so really. Um, um, and we find that we're not the only ones. Uh, we we we we've looked in the past and we've seen other asset owners

Speaker 0:
aggressively going up to the limit every time that the limit was raised. So when we're in the twenties and 25 30 people would essentially go full up to their total limits. But we are seeing other asset owners with us now, uh, saying that, uh, these limits are at a level at which we can now, uh, not necessarily rush to the limit, but rather look at relative value. And so we are still seeing value globally. We are still seeing value in Africa, Like I said, uh, but but as I said, we are limited by by by our experience, um, the last 10 years, which which hasn't been great. Like I've said,

Speaker 0:
uh, maybe to pick up on a point that Paul just mentioned around picking up coupons at this level, uh, of of valuation, which is, as we've all agreed Attractive. Yes, totally agree with you. Picking up coupons is a really good idea. Um, but but there has been a concern when we've travelled, um, the African continent and and visited, uh, some Treasuries. There certainly is some

Speaker 0:
pressure on the on the on on on the FX reserve front and so and so And so, you know, um, we are cautious. Uh, and hopefully you're cautiously optimistic that that that that countries can afford to pay off their dollar coupons, Um, for €4 bonds. But but certainly there are some that just just have pressure in terms of the F S. Uh, reserves. Thanks, Joe.

Speaker 0:
OK, I think you bring up a really good point there. So get back Paul FX reserves, and it's priced in dollars. The yields are attractive, but what's your experience been in getting the money out of these countries? Are you being repaid? Can you can you sell What are the? So let's talk about liquidity here. What's actually happening in these markets

Speaker 1:
on the on the euro bond market? Specifically, um, your you don't have that repatriation risk like you might if you buy, For example, a Nigerian local currency bond, the euro bonds, they they in US dollars and euros Predominantly, they settle offshore. Uh, bureau clear, clear stream. So you you don't have that

Speaker 1:
that liquidity risk in terms of of repatriation risk, But you obviously have the risk, um, liquidity risk solvency. In terms of will, the company will the country be able to actually give you dollars service. The coupons pay you back when the when the debt becomes due. Um, so, yeah, I mean that the number one key metric I'm sure all of us are focusing on now is that sustainability, debt sustainability,

Speaker 1:
and they actually pay back the dollars that they own. Um, and and I think that's really why we've seen a bit of a wobble recently in Kenya, Egypt. Um, some worries about that. Some doubts about that

Speaker 1:
to a large degree, not helped by the countries themselves. Um, they each have their obviously their own internal dynamics. Egypt, we think, has been very slow in taking its medicine, doing what it needs to. It needs a FX d val, and it needs to do some asset sales privatisations. They seem to be holding off on that, waiting for better pricing, Um, at the moment, waiting for better global macro. Hopefully in the next

Speaker 1:
six months or so, get better prices for whatever they need to do. Kenya also needs, um, their currencies recently over the last few weeks kind of become a little bit more normalised. Um, but still, there's there's a lot they need to do internally. But yeah, that that is the number one thing we look at is debt sustainability. Can these countries pay off their debt? And someone mentioned it earlier. But IMF is a big part of that equation. Are you on an IMF programme?

Speaker 1:
Are you undergoing the reforms that you should be doing? Um, is the IMF there to backstop your world Bank? We think they very much are in the in the likes of Kenya. Um, and Kenya is a small amount as well. It's it's not a it's just a couple of billion dollars, and they they are OK, uh,

Speaker 1:
Egypt is a little bit more of a problem. It's just so much of a bigger curve. You've got 30 more than $30 million outstanding, billion of Eurobonds. So it it's gonna take a lot more money to fix more than just IMF. World Bank can do very easily. Um, so yeah, very much what we're looking at at the moment,

Speaker 0:
Greg, just kind of going back to what Paul was kind of alluding to there, you know, there's the You talk about the Russia crisis. You talked about covid, but how much of Africa's own issues are scoring their own goals like, you know, doing they doing bad policy. Because if you want the world to come and help Africa and give them money, they've also got to play by the rules it. So how much of what we're seeing as countries just not doing the right thing, or is it just because they're part of the global economy and they've struggled along with it?

Speaker 0:
Um, I think there's a bit of both and it varies again across the diverse number of countries. There's some countries where

Speaker 0:
the the the policy choices don't add up to something constructive that will attract investors. But for a lot of countries, they are doing the right thing and they've just been caught out by a series of shocks. And for those countries, it's quite difficult because they're they're they're working hard and they're trying to deliver the right macroeconomic environment, the right investment policy. But they're not seeing that flow of investment and, you know, the markets have have shut the door for the time being.

Speaker 0:
Um, overseas aid is not being dispersed as it was. F d. I is slow to come and it's only really Remittances that is sort of maintaining its flow in. So there's a bit of watching and waiting. But with most financial markets, these things are quite cyclical. So if you can get your policies together and you can be patient, then then things can work out for you. And I think the key thing for us over the next couple of years is, I think in these tough markets is you just got to go case by case and look at who has,

Speaker 0:
um, who has a spike in maturities or difficult financing needs in the short term and who can just sort of sit calmly while while we sit out this aversion. And when you look at the likes of Senegal or Ivory Coast, there aren't too many near term financial pressures. And that's why they tried to trade at much tighter spreads than others. Rwanda, for example, had its debut Eurobond maturing a couple of weeks ago, but thankfully they came back and refinance that in better markets in 2020

Speaker 0:
one. So a potential problem was eliminated way out way in advance because of the right debt management policies. So we see that in in lots of cases. I think where things are challenging, you know Kenya is to me, has is making the policy moves to be solvent. But it has a very large bond maturing in 13 months. It has a euro bond of $2 billion maturing in June 24 that's what's the market scratching its head. So

Speaker 0:
you know the market's trying to guess Is the market going to be open to Kenya over the next 13 months? And if not, what what happens? And that's why Kenya bonds are quite stressed. They're not trading at destress levels, but the market's thinking through. Hang on. If they're closed, what happens? Does this bond need to

Speaker 0:
be re profiled? What international support will be? And so it's going to be a very difficult UM, 12, 13 months for for Kenya. Maybe things turn good on the market front. Maybe they get the support from the international organisations, but it's not going to be an an easy path

Speaker 0:
elsewhere. I'd say Tunisia was another country with quite near term maturities and it's essential for Tunisia to get on an IMF programme to try and crowd in that international finance and I think probably the most complicated story at the moment is Egypt and

Speaker 0:
I was in Washington DC in October, meeting the IMF teams. And that was the moment when we learned that the IMF programme wasn't going to be very big. Yes, the IMF were going to engage, but they weren't going to provide net financing

Speaker 0:
and then you got the Gulf saying We're not gonna step in and provide this financing easy. We're not giving easy money. We want assets and investments in return for our money. So that happened. And then Egypt essentially lost market access as as sort of fear around their story spread. So there's a real tricky number of months ahead. And, um, quite rightly, there's a number of

Speaker 0:
things Egypt can do and we're waiting on an IMF review and so they've really got to do everything they can at home to be able to attract in the different flows of in investment from various sources. So I think with each of these stories, there's an opportunity to fix it. But there is a risk, either through global macro or a lack of reform at home that that things do go astray.

Speaker 0:
That said. As an investor, some of the best returns are actually found in the more tricky stories. For example, the two best returns on euro bonds in African on the African continent this year have been Ghana and Ethiopia, both because they sold off too aggressively in the latter months of UM 2022. So they've produced the best returns among African Eurobonds. Despite the difficulties both countries are going in.

Speaker 0:
So it's a difficult one. So you need to sort of be nimble. You need to get your timing right and and sort of work out. What what are the catalysts for? For changes. And even when a country does go into default, as Ghana has, there are still opportunities in terms of recovery. So it creates a big tapestry. And at the other end of the spectrum, I should say

Speaker 0:
I remember meeting the Moroccan finance minister here in London when she came, and that's probably one of the best stories this year. And they the bonds they issued this year were at reasonable prices despite tough markets, and they came with a very good narrative and and one in which you know those new issues have done really well, despite everything else going on. So, as I said, massively diverse.

Speaker 0:
Yeah. So what I'm picking up today listening to you, gentlemen, is Africa is not one story. It's many, many stories with many different, um, factors that affect these things. So, Paul, a nice plug here for your funds. Would you Would you argue that it's almost impossible to do passive investing in Africa, Be it the bond markets. We haven't even got touched on equities yet. But would you say that's a true statement, given everything Greg's been talking about?

Speaker 1:
Yeah, I we obviously talking our own book very much. So. We believe that, um, on the equity side, uh, we we've just seen time and time again. It doesn't work. Um, a huge, huge part of the opportunity set is out of the top 30 names out of the top 2030 names that make up really pretty much all all of that passive. Um, the bigger part of the index,

Speaker 1:
uh, the opportunities are often in that more mid cap space. Um, and then on the bond side, yeah. Being able to, as Greg said, be able to be nimble. Be selective. Um be able to do from time to time on an opportunistic basis. Some local currency, some corporate credit.

Speaker 1:
Um, just for example, right now, we're seeing really good opportunity. Zambia, local currency, Uganda, Long bond, local currency. Um, not a huge part of the fund, and very only opportunistic, But we've got about 6% combined and something like that, Uh, and then we have a corporate credit name that we think is largely been ignored by the market, even though it's got great cash flows and sitting on a 17% yield to maturity over the next three years.

Speaker 1:
Yeah, I I I think you have to go active.

Speaker 0:
Yeah, Thabo, you You're investing in Africa and have been for a while. I'm assuming you could go the actor route.

Speaker 0:
Yeah. So I was gonna pick up that point exactly to say that, um, that was really our first port of call When we're looking to address the the the our bad experience. Um, look at whether we could just do it passively and to echo. I think Paul's comments, um, we find that just there's not enough liquidity. Um, we we really couldn't find that we can go to the, you know, banks and even synthetically put together, um, uh, instruments that could, uh, passively trade the market. So So, So so so, no. On the equity front, we really struggled

Speaker 0:
and really not. Not really doable at all. Uh, and so it led us to that fixed income, um, solution, which has really been the focus of of what I've been talking about, really Just fixed income and and and more specifically, euro Bonds and and And really, that's how we started to lean. We, we we we leaned in the fact that, uh, we thought, um, to avoid repatriation risk. Uh, let's let's rather, uh, focus in on, um, uh, assets that are that are in dollars or in hard currency euros as well. Um, and so and so, really, that that's been That's been a bit of a soul for us. Um,

Speaker 0:
as we now invest in Euro bonds, um, on a on a on on a core basis. So with a limited risk budget, um, and as we've also now began to invest in, uh, private credit as well.

Speaker 0:
And gentlemen, I'm hearing lots of opportunities in Africa. African opportunities. Um, I'm also hearing quite a lot of risk and not quite sure what the catalyst is going to be for people to put liquidity back into these markets. So from a portfolio construction, I'm gonna ask each one of you

Speaker 0:
if you're running a global fund. So, Paul, I kick up with you. If you're running a global fund and you're looking at these dollar assets and you're worried about liquidity, what kind of allocation would you put to African equities and bonds in a global portfolio?

Speaker 1:
Yeah. I mean, uh, let me take it back, I guess, more to South Africa, how we think about it and how we're speaking to our clients. Um, Thabo gave a very good rundown earlier of of what the new limits are and how to think about things. Um,

Speaker 1:
we very much see that Africa does stand alone. It doesn't need that extra offshore allowance, um, that we used to have. Right now, it it stands alone, competes very well with globe. So, yeah, I mean, we would say to South African pension funds. Um, sure, I have have a lot of short that that does seem to make a lot of sense.

Speaker 1:
Um, but probably in the region of, I don't know, 3 to 5% in Africa for us would make sense for A for a large South African pension fund. Uh, the rest of the globe, How much you'd have? I I'm not sure. A couple of percent, but yeah, it it's I I think you you definitely can have a a not insignificant position. Um,

Speaker 1:
as a as a large South African pension fund and even even private portfolios. I mean, it's it's as good a value. Obviously, uh, for those patient capital, those guys who are happy to to, uh, withstand some volatility. Um, man on the streets, it makes a lot of sense to to have as well, we think, as a diversify and great potential upside

Speaker 0:
Greg, Um, you're emerging market bond manager.

Speaker 0:
What kind of allocation would Africa have in your funds? Or is that more frontier investing?

Speaker 0:
Um, yeah. The tricky part is Africa's tiny. When it comes to to global e m investments, you know, you you can't scale many of the investments. So for the very big funds, it's difficult to to even run a large number of percent. Even in the good years because you just wouldn't get the liquidity on on some of the bonds. So, you know, small funds can be more nimble and sometimes better at jumping on the opportunities. And

Speaker 0:
so it really just depends on the mandate. Is the complication there? You know, we we sort of manage about 350 billion. And we've got, um, equities funds, multi asset private investment, um, sustainable private investment and then the bond fund. So there's, you know, the different types of fund can take different opportunities. I think in global bonds. You know, you there's there's there's a you know, once you get like

Speaker 0:
clips of 10 $20 million on particular African Euro bonds, it gets tricky to move them quickly. But when you're operating in 1 to 3 million clips, you you can you can trade quite quickly in a given day. And so you know, the the bigger allocations can be in the smaller funds. But again, you want to balance that high yield Africa risk with some more solid names, and particularly it's the double Bs where I see the value and the

Speaker 0:
they're the likes of Ivory Coast, Morocco. Um, and they're the the countries that are trading more like the I G space, and it's the single bees that are slightly out to sea. But if you're very selective among those names, there's there's there's potential for good return, so it needs to be incredibly active, and you need to do a lot of homework to get those single bees right? And, you know, I was in Egypt earlier in the year, and we spent a lot of time as a team talking. We went to

Speaker 0:
BC to meet. We met the minister of finance. We met the the leadership of the central Bank, and you just got to do the homework and and and watch and understand the the different things going on. So you know, the and and then the percentage allocation can change quite quickly. So, as I said, you kind of want to be nimble, and that stops bigger funds taking large positions. But I think Africa is a sense in a smaller fund. What would your percentage be,

Speaker 0:
um, in terms of global e m. I think it would range between about six and 15% depending on what's going stop you there because we're running out of time. So 6 to 15% in a smaller fund that can be nimble and has liquidity has liquidity constraints to by just ending up with you. You know, we talked a lot about that. You haven't changed your view on Africa. Given the change to break 28 you're still investing. What? What's your Where would you Where do you want exposure in Africa for long term patient, um, unit holders.

Speaker 0:
Yeah. Yeah, very. Very similar to what? Uh, I heard Paul say we are in and around that, uh, single digit, uh, level with respect to our portfolio again and similar to what Greg just said. Uh, the size of our portfolio is quite large. We're about $10 billion. So So A reasonable size in terms of the entire asset portfolio. Uh, with respect to Africa specifically, um, we we added about that 50 50 split between equities and and and and debt.

Speaker 0:
Um, and and again, I think on the equities front, we're gonna be opportunistic with those opportunities. Um, wherever we find something attractive, we will potentially look on the on the private side of things. Private equity with respect to to to the debt side of things. The other 50% again, remaining positive. Hope in that story pans out. You know? Well, in the next couple of years And, uh, and there's a split there, 50 50 between Euro Bonds and and again, kind of hard currency. Private credit is kind of where we are.

Speaker 0:
Gentlemen, thanks very much for your time today. Um, clearly opportunities the bound in Africa. Uh, but what is incredibly obvious? Listening to all three of you is you have to do your homework, and not all African countries are the same. Uh, so thank you very much. And I hope this has given people food for thought. We're looking at Africa. Thank

Speaker 1:
you. All right, thanks. Thanks, everybody. Thanks, Greg. Thabo,

Speaker 1:
Thank you.