With economies across Asia cooling down and the risk of tumultuous currency markets as the American Fed continues forward with its tapering program, many Asian investors are now turning to Africa for sources of growth. With Africa as a whole recording some of the best growth rates in the world, many Asian investors are now hoping that the continent could become a source for solid return.
Asian investors attracted by higher yield African bonds
At the moment, many Asian investors are showing a preference towards African bonds, which are offering much higher yield rates than most Asian countries. Asia and Africa have been growing closer in recent years, spurred on largely by the efforts of the Chinese.
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With China is in need of vast quantities of natural resources, and many African nations in turn being rich in said resources, links between Africa and Asia have been expanding. Still, many of the expanding links have been government to government, or involved more direct business investing.
Now, however, Asian investors are also getting in on the game. With Asia’s growth rates expected to slow to about 5% and sub-Sahara Africa set to grow by at least 6%, there may be a potential to cash in on quick returns by investing in Africa.
Africa to become an engine of growth
Frontier markets have performed especially well in Africa. The MSCI African Frontier Markets Index rose some 25.8% in 2012, vs. returns of only 13.1% for Asia’s frontier markets. Traditionally, investors have been wary of Africa due to the high levels of risk associated with the region, but improving governance and legal environments is helping to build confidence.
Bonds are becoming especially attractive. While bonds for fully developed countries are often generating returns of 3% or less, many African countries are offering bond rates in excess of 5%. At the same time, with the regional economy growing quickly, African governments will be in a better position to repay their debts.
In the past, numerous African nations have been forced to default on their debts. The general view right now, however, is that Africa has finally turned the corner. If so, a region overflowing with resources and in huge need of investments in infrastructure and other basic economic necessities could soon become a source of growth and returns.
In 2013, some $10.7 billion dollars worth of bonds were sold in 2013, representing a 88% increase over the year before. While Asian investors are not the only ones getting in on the game, they are quickly becoming the biggest players. With investors from Taiwan, Singapore, Hong Kong, and China (among others) flushed with cash, they now have the capital necessary to take the lead.