Enko Capital Management
17 December 2014
Chief Executive Officer of Enko Capital Management, Mr. Alain Nkontchou
Q: Please elaborate on the state of Capital Markets in Africa
Two thirds of African countries have a stock exchange represented by 25 domestic and 2 regional stock exchanges. Between 2007 and 2013 there were 186 new listings raising US$ 15.9 billion across 19 exchanges. Total Market Capitalization stood at US$ 775.2 billion as at Dec 2013. However, the Market Capitalization-to-GDP ratio in Africa remains low, at 33% when excluding South Africa, compared with 80% versus emerging market peers and 105% for the USA. This implies a relative scarcity of financial assets in local markets and indicates that large sections of the economy are yet to participate in the exchange traded formal capital markets. African equity markets have returned over 13% annually for the last five years, combined with lower volatility when compared with global emerging & frontier markets, resulting in higher risk-adjusted returns. Lower correlation, volatility, and higher risk-adjusted returns make the case for African equities as an added benefit in building a globally diversified portfolio, with the deepening of markets to provide increased opportunities over time.
Four Key Investment Themes – Political stability, strong GDP growth, investment inflows and positive demographics have ushered in a conducive environment to drive returns on the continent. We believe we can positively exploit these developments through investing in four key themes, namely: - Agriculture, Consumer, Infrastructure & Resource sectors.
Q: How attractive are Africa’s debt markets?
Africa’s debt markets extremely attractive for a number of reasons including:
- 55 Recognized States
- Population of approx. 1 billion
- Combined GDP of US$ 2 trillion
- 60% of the world’s uncultivated arable land
- 200 million Africans with GDP per capita > US$ 5k by 2020
- 20% CAGR in FDI since 2007
- 5.5% share of global FDI projects
- US$ 85 billion in funding for infrastructure
- 7 of the world’s 10 fastest growing economies over the next 3 years
- Half of continent’s population is of working age (15-64 years old)
In addition the following characteristics of African markets present unique opportunities:
*Stronger debt sustainability across the region is brought by a combination of sovereign debt forgiveness in the mid-90s and higher commodity prices. Average Debt/GDP in sub Saharan Africa is 29%.
*Higher real yield in the front end as most Central Banks de facto target exchange rate to achieve price stability, hence they do not hesitate to keep high real rate in the front end, given that the knock on effect on the real economy is relatively muted considering the low level of credit creation.
*Higher corporate credit spread as companies find it difficult to raise debt and banks’ lending is rather low. This is due to the lack of centralized credit information, lack of efficient collateral recovery, limited access to long term financing and lending that is essentially asset based.
** Lower level of financial intermediation, creating a severe credit shortage of private sector credit. Hence an increased in non-bank lending.
** Periodic Asset mispricing as capital outflows deriving from external shocks uncorrelated to local fundamentals often lead to severe asset mispricing, thus creating attractive investments opportunities.
** Increasing demand for fixed income assets as pension funds and insurances seek to deploy long term assets.
All the points above illustrate the attractiveness of the investment opportunities within the African debt market. Besides, the African debt market is set to grow substantially as their economies expand further in the future.
The appetite for African credit is rising, evidenced by a record US $6.25 billion of dollar-denominated sovereign debt in 2013. This will be followed by approximately US $6 billion worth of issuances expected this year.
Q: Could you please elaborate on the Enko Afria Debt Fund?
Enko Africa Debt Fund
Enko ADF is one of the first in its kind, will invest solely in fixed income securities, both listed and unlisted securities in Africa (Ex SA), including corporate and sovereign debt.
It aims to offer fixed income and credit as an alternative asset class within the African markets and capture broad pan-African high fixed income returns in US Dollars.
Finally it offers the opportunity to diversify away from traditional fixed income investment fund.
In order achieve this, Enko will leverage on a favorable structural economic background in Africa and the strong experience of the fund managers in global and African fixed income markets.
Enko Capital Management is a FCA regulated asset management company, established in 2008 by brothers Alain and Cyrille Nkontchou who have over 45 years combined experience in the investment industry, with offices in London and Johannesburg. Enko Capital Management seeks to offer investors a wide array of investment opportunities with the goal of long term capital appreciation through three fund offerings.
Alain Nkontchou was previously Managing Director for Global Macro Trading within the Proprietary Trading Group of Credit-Suisse in London, a group he joined in 2005 from JP Morgan, where he had held the same position since 2002. Alain has extensive experience in fixed income, currencies, commodities and stock indices.
From 2001 until 2002, Alain was at BlueCrest Capital Management as a portfolio Manager. In 2002, he returned to JPMorgan. Prior to joining JP Morgan (Chemical Bank) in 1989, he was a research engineer on speech recognition systems for Matra Communication in France.
Since 1999 Alain has been a board member of Laurent-Perrier, a leading champagne company listed on the Paris Stock Exchange.