Invest ad lux presentation david sanders 11 04 2012

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Invest ad lux presentation david sanders 11 04 2012

  1. 1. Emerging Africa and The Middle EastDavid Sanders, Chief Investment OfficerLuxembourg Forum, April 26, 2012
  2. 2. Who is Invest AD Abu Dhabi Sovereign Wealth Funds Abu Dhabi Investment Abu Dhabi Investment International Petroleum Mubadala Development Authority (ADIA) Council (ADIC) Investment Corporation Company (IPIC) Invests Abu Dhabi’s surplus Created out of ADIA in Invests mainly in foreign Mandate to drive the revenues into financial 2007, and fulfils a similar oil and energy companies, diversification and assets abroad, thus role, although it has a focusing primarily on development of the providing capital greater focus on investing downstream activities Abu Dhabi economy diversification for the in the Middle East region emirate’s economy Invest AD (Abu Dhabi Investment Company) Invests in Middle East and emerging Africa. Uniquely among sovereign entities, offers these investment opportunities to third-party clients 2
  3. 3. Asset management offering tailored to client needs Middle East & Partnerships Discretionary Emerging Africa funds mandates  Active, fundamentally  White labeling  Tailor-made solutions driven strategies: for Institutional or HNWI  Sub-advisory − Emerging Africa Fund Investors  JV partnerships − GCC Focus Fund − Regional or  Partners include: country specific − Iraq Opportunity Fund – SBI Holdings (Japan) − Active or passive − Libya Opportunity Fund SBI Africa Fund − Conventional or – BHF Bank (Germany) Shariah compliant  Passively managed funds Frankfurt-Trust Emerging Arabia Fund − UAE Total Return Fund – Quam (Hong Kong) Quam Middle East Fund – Al Hilal Bank (UAE) Al Hilal GCC Equity Fund 3
  4. 4. Fundamentals 4
  5. 5. From Frontier to Emerging Perceptions of risk are changing Opportunity is growing  Legal, government institutions improving  Rapid economic development  Public pressure against corruption  Rich in natural resources  Political change mostly peaceful  Growth in personal consumption  Markets young but developing  Compelling valuations  Less correlated to other global markets  Political short-term volatility, medium-term opportunity 5
  6. 6. Africa and Middle East underperformed in recent years Risk/return over last three years January 2009 – December 2011 ( Single Computation) • MSCI EFM AFRICA ex ZA • S&P 500 • MSCI AC ASIA • MSCI EM (EMERGING MARKETS) • DJ Eurostoxx 50 Index • S&P GCC LMC Index  Market Benchmark: MSCI World Index  Cash Equivalent: Citigroup 3-month T-bill Return Standard Deviation Source: Invest AD Research - Zephyr Style Advisor data for Jan 2009 – Dec 2011 6
  7. 7. But rapid growth expected in coming years World’s fastest growing economies Turkey Iraq 2011-2015 Lebanon Tunisia Jordan Kuwait GDP growth 2011- Morocco Egypt 2015 (CAGR) Bahrain Qatar Saudi UAE Iraq 10.8% Arabia Oman China 9.5% Senegal India 8.2% Ethiopia 8.1% Ivory Ghana Nigeria Coast Mozambique 7.7% Tanzania 7.3% Kenya Vietnam 7.2% Tanzania D.R. Congo 7.0% Zambia Ghana 7.0% Zambia 6.9% Zimbabwe Mauritius Namibia Afghanistan 6.9% Botswana Nigeria 6.8% Excluding countries with less than 10 million South Africa population. Eg. Qatar forecast GDP growth of 8.4% 2011-2015 CAGR Source: IMF January 2011 7
  8. 8. Arabian Gulf shows how resources can be harnessed GCC continues to accumulate surpluses 2012 budget oil price assumption  $100 per barrel oil* gives Gulf Cooperation Council (GCC) more than $200 billion budget Saudi Arabia 85.0 surplus UAE 79.5  Surpluses fund economic diversification Qatar 59.0  GCC to award over $160 billion of projects in Kuwait 65.0 2011, including for infrastructure and energy Oman 79.0  Extra $136 billion spending in Saudi Arabia Bahrain 89.0  Qatar project spending forecast to reach $100 billion over five years 8 Source: Invest AD Research; Bloomberg data; MEED 31st December 2011. Average realised price per barrel
  9. 9. Natural resources give Africa huge potential  10% of world’s oil reserves  40% of gold reserves  80-90% of chromium and platinum group metals  Broad even spread of the mineral reserves across the entire continent  60% share of the world’s arable land yet to be cultivated Sources: The Economist: February 11th, 2012. Invest AD research Sources: The Economist: February 11th, 2012. Invest AD research 9
  10. 10. Markets 10
  11. 11. GCC:Valuations attractive, high forecast earnings growth 30% Mexico 25% Kuwait Taiwan 20% Egypt Indonesia China Korea EPS growth (2013e) 15% India Abu Dhabi Qatar Turkey South Africa 10% Saudi Arabia Malaysia Philippines Dubai Oman 5% Czech Republic 0% Russia Poland -5% 4 6 8 10 12 14 16 PE (2012e) Source: As at Q 4 2011 - HSBC 11
  12. 12. S&P GCC index Consumer Utilities Energy Consumer Staples 2% 2% Discretionary Market Market Cap Daily turnover Listed S&P 3% 0% (US$ mln) (US$ mln) firms rating* Saudi Arabia 325,000 1,100 148 AA- Telecoms UAE 104,000 31 Industrials 94 AA** 11% 9% Qatar 121,000 66 44 AA Kuwait 97,000 81 221 AA Oman 17,000 7 116 A Financials Bahrain 15,000 1 41 BBB 48% Materials 25% * Long-term foreign currency debt rating ** S&P rating for Emirate of Abu Dhabi Source: Bloomberg, - Invest AD 12
  13. 13. Africa:Valuations attractive, high forecast earnings growth 20 Ghana 18 EPS GROWTH 2012 16 Tunisia 14 Kenya LATAM 12 Nigeria ASIA 10 Egypt 8 Mauritius Morocco 6 EASTERN EUROPE 4 4 6 8 10 12 14 16 18 PE 2012 13
  14. 14. MSCI Emerging Africa (ex South Africa) Materials, Consumer Market Market cap Daily Listed S&P 2.64% Discretionary, (US$ mln) turnover firms rating* 0.82% (US$ mln) Egypt 62,500 100 226 BB Industrials, 11.28% Morocco 65,600 59 77 BBB- Nigeria 44,000 34 239 B+ Kenya 9,800 5 54 B+ Tunisia 9,800 4.5 59 BBB- Financials, Telecoms, 44.75% Mauritius 8,200 1.3 40 N/A 20.00% N/A BRVM market 7,200 0.5 33 Zambia 2,000 0.8 19 BB+ Botswana 4,400 1.0 20 A- Ghana 3,200 0.2 36 B Consumer Staples, 20.50% • Long-term foreign currency debt rating; 14 Source: Bloomberg, - Invest AD
  15. 15. Focus on Africa 15
  16. 16. Assessing Africa  54 countries & 36 stock exchanges, Over 1bn people and 41% under the age of 15  52 cities of at least 1m people  Mobile phone penetration of about 50%  Over 300m people now classified as “middle class” (up 27% from 2000)  60% share of the world’s arable land yet to be cultivated 16
  17. 17. High-growth economies Among world’s fastest growing economies Forecast 2011-2014: Annual real GDP growth (CAGR) GDP of Sub-Sahara Africa increased 64% between Iraq: 10.8% 2005 and 2010 to reach $1,018 billion Saudi Arabia: 4.5% Demographics Qatar: 8.4%  Africa’s population forecast to grow 50 percent to 1.5 billion by 2050 Domestic Consumption  African consumer spending set to climb 60% Ethiopia: 8.1% to $1.4 trillion by 2020 Ghana: 7.0% Kenya: 6.3%  Consumer spending is more than India or Russia Nigeria: 6.8% Tanzania: 7.3% Urbanisation  Half of Africans to live in cities by 2030, Zambia: 6.9% up from 37% currently Botswana: 6.0 Mozambique: 7.8% South Africa: 4.1% Sources: IMF and World Bank June 2011. 17
  18. 18. The good decade past  Many long-running wars have ended  Foreign debts and government deficits are down  Companies are investing and expanding  Spread of Multi-party democracy  Incomes are growing May 2000 December 2011 18
  19. 19. Growth and investment has been strong  Between 2001-10, six of the ten fastest growing economies in the world were in Africa  Between 2004-08, real GDP growth across sub-Saharan Africa was 6.6%, more than twice the pace of the 1980s and 1990s  Average real GDP growth is forecast to be 4.9% between 2012-16, compared to expected world growth of 2.9% in the same period  Ghana was projected to be the world’s fastest growing economy in 2011, at 16.3% (Standard Bank) 19
  20. 20. The market has changed  Average inflation rates have fallen from 22% in the 1990s to 8% during the 2000s  Both corporate taxes and trade barriers have been cut, and institutional bodies strengthened in many places  Average government debt overall has fallen 28%. Various debt relief programmes have written off debt in exchange for reforms  A privatisation trend that started in the 1990s has continued and accelerated 20
  21. 21. Less correlated with other global markets Correlations over last three years (monthly total returns in US$) DJ Eurostoxx 50 FTSE 100 0.94 S&P 500 0.90 MSCI Asia 0.88 MSCI Emerging Markets 0.86 S&P GCC 0.69 MSCI EFM Africa Ex South Africa 0.54 Indices used: S&P GCC Composite LMC, S&P 500, MSCI AC Asia, MSCI EFM Africa ex ZA, MSCI Emerging Markets, EuroStoxx 21 50 (all net total return in USD). Data series from 31st Dec 2008 to 31st Dec 2011 based on monthly % - Invest AD.
  22. 22. EIU SurveyInto Africa: Institutional Investor intentions to 2016 22
  23. 23. Investors are taking an interest – EIU Survey 23
  24. 24. A new wave of interest 1. More focused targeting on specific opportunities in specific countries/regions 2. Generally longer-term perspective: nearly two-thirds (64%) of those polled agree that due to the volatility of returns in Africa’s frontier markets, such investments must be considered long-term 3. As a frontier market, Africa is highly rated by investors for the opportunity it holds 24
  25. 25. Enduring barriers & risk  Africa remains the world’s least developed continent  A good decade past, doesn’t guarantee a good decade ahead  The Arab Spring has resulted in some government changes, but a stable new order has yet to take hold  Political risk remains a concern, but less so than illiquidity in markets, or weak legal and governmental institutions 25
  26. 26. The leading challenge overall: Bribery and corruption  Most African countries remain in the lower rankings of Transparency International’s (TI) Corruption Perceptions Index  Of 15 African countries tracked in 2001, eight had improved their scores by 2010, with one remaining at the same level, but six had declined over the period  Corruption is similarly rife in other emerging markets, including all the BRIC countries  Concerns about corruption are twice as high among investors with no current exposure to African markets compared to investors with current exposure (64% compared to 33%) 26
  27. 27. The new investment case for Africa  Previously investors tended to view Africa purely as a commodities opportunity (often via international mining stocks)  Today investors also look to gain from the emergence of a strong middle class, similar to the story of China and India  Rising consumerism is now rated the most attractive aspect overall of investing in African frontier markets 27
  28. 28. Where to invest  Although consumerism is most attractive to investors, they still expect the highest returns from energy and natural resources  Returns are also expected to be high in agriculture, construction, financial services and telecommunications  The expanding consumer class is steadily helping to counteract concerns about an overreliance on resources 28
  29. 29. Key Findings of EIU Survey 1. Institutional investors see African frontier markets holding the greatest overall investment potential among similar markets globally 2. Institutional investors plan to increase their asset allocation in African markets over the coming five years 3. Investors are moving to longer-term investment strategies for Africa, rather than more speculative, short-term bets 4. Africa’s emerging middle class is catching investors’ eyes, ahead of commodities and natural resources 5. Investors now worry more about technical concerns than about macroeconomic and political risks, at least in key markets 29
  30. 30. Diverse growth drivers Natural resources Infrastructure Demographics development  Oil & gas  Road/rail  Second largest continent  Minerals & commodities  Power in land mass; one billion population  Agriculture & agro-  Water processing  Rising population, though  Education & health growth rate slowing  Tourism  Oil & gas-related  “Reverse brain drain“  Textiles as African executives returning from developed markets  Domestic consumption of emerging middle classes 30
  31. 31. Thank YouInvest ADInvest AD Asset Management PJSC David P. Sanders, CFAPO Box 46309 d.sanders@investad.comAbu Dhabi, United Arab Emirates +971-2-692-6325

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