Nigeria: Ready for a strong recovery

Nigeria has voted and we are proud to say that democracy has won and profound moment in Nigeria’s history. We wanted to share with you some input on this historic event and on our outlook for Nigeria’s capital markets going forward. Attached you will find the link to our outlook:

In summary we want to highlight the following:

  • Over the past 18 months, Nigeria’s equity market performance has been consistently poor having  lost 38% from end of 2013 compared to the emerging BRIC markets, which have lost less 3%. We believe that the Nigerian election results will act as real catalyst and that the market could go up 30-40% in the coming months.
  • Bond and currency markets look equally attractive. Within local currency markets, yields have significant room to tighten and based on the current inflation trend, we foresee local government yields moving back below 13%. On the hard currency side, spreads are 1% higher than long term averages.

On the political side, we wanted to share with you our reading of the situation. Africa’s biggest democracy held its much anticipated general elections this weekend, this being the continent’s most anticipated general election and it did not disappoint. There were a few issues such as administrative problems with some card readers failing to work and some violence in the North but overall, unlike in the previous elections, there was a much greater enthusiasm to vote by the electorate. Nigerians turned out in their millions and waited patiently for up to several hours to vote. Those who did not vote, did not do so out of choice but rather because of inefficiencies on the part of the Independent National Electorate Commission (“INEC”). Transparency also improved significantly  and with the new biometric voting cards voting took place openly with voters watching the process keenly to ensure that the election process was followed strictly. Social media also helped improve transparency with voters posting pictures and videos of any irregularities or delays. Vote counting was done swiftly, commencing as soon as the final vote was cast for that station.

These elections were the tightest and most hotly contested elections that Nigeria has ever seen and though there were a total of 11 presidential candidates, the race was really between the incumbent, President Goodluck Jonathan of the People’s Democratic Party (PDP) and retired military ruler, Muhammadu Buhari of All Progressives Congress (APC). The PDP has won every election since Nigeria transitioned to civilian rule in 1999 but the APC under the leadership of Buhari, emerged as a strong and credible opposition party. Former military ruler Muhammadu Buhari beat Goodluck Jonathan by more than 2.5 million votes, making history as the first opposition leader to remove a sitting president through a democratic process. By and large, the elections went by smoothly and for the most part peacefully. We anticipate some pockets of violence from PDP followers but we expect this to be quickly contained. It was very encouraging that Goodluck Jonathan conceded defeat swiftly and graciously, calling to congratulate his opponent on his election victory. We believe we saw many winners in these elections; the obvious winner Muhammadu Buhari, INEC chairman Prof Jega who managed to conduct the electoral process efficiently and smoothly as well as President Jonathan who conceded his loss graciously.

Going forward, we expect to see no significant policy changes in a new Buhari administration, however, we envision further positive catalysts with the immediate focus on eliminating the threat of Boko Haram and economic reforms including the commitment to clamp down on the endemic corruption that has hindered Nigeria’s growth since independence.

Investment Outlook 2015 – Bounce

The year has started with a lot of volatility but we believe that the markets will move back to a more positive and calmer environment in the coming months. Our outlook which can be accessed here: Silk Invest Investment Outlook 2015, showcases our views on global markets and contrasts the market drivers across Developed, Emerging and Frontier markets.

Our position diverges from consensus but fundamentally speaking we see a lot of mispricing in the market and solid conditions for positive returns. We believe that Emerging Markets in general will be more positive in 2015 and that Frontier Markets will once again outperform. Frontier Markets remain well positioned from both a valuation and macro point of view. They did relatively well in 2014 and we firmly believe that across equities and bonds, 2015 will be an even better year. Developed markets are trading at historically high valuation multiples and low bond yields while Emerging Markets and Frontier Markets are selling at steep discounts. Within equities, we believe that discounts will come down in the latter part of 2015. On the bond side, EM hard currency spreads are relatively tight but local currency bonds look very attractive, especially in Africa.

We are therefore very optimistic about the year but believe that markets will not move in a linearly line and volatility will remain high. As an investment house, we believe that commodity prices are not the major driver of value but unfortunately most investors are happy to build their investment thesis on this. The net result is volatility and short-term noise but very limited impact over a medium to long term horizon, except when investing in commodities stocks which we don’t. We have always preferred to invest in solid companies and Frontier governments which are not relying on commodities to grow.

I hope you will take a moment to read our investment outlook and please feel free to get in touch with us if you have any questions or wish to share your feedback with us. I am looking forward to any questions or comments and wish you all the best for 2015.

Best Regards,


Market Flash October 2014

The recent market correction has taken many investors by surprise and although scary, Silk Invest believes that markets are overreacting. A combination of sustained low interest rates and low commodity prices is good news for most economies in the world including some oil producing countries. In that sense, we may have established a new base for a market rally. It may take time before investors refocus on fundamentals but in the meantime, Frontier markets are well positioned.

You can find a link to a short note with our views here:

Key points are as follows:

Frontier Markets are showing more resilience in recent weeks

  • Our main reference indices (MSCI EFM Africa ex ZA and FM ex GCC) have since end of August lost around 5%
  • The main MSCI Developed and Emerging markets have lost close to 10%

Markets are well positioned in the next cycle when looking at long term trends

  • Most of our FM regions are selling close to their October 2008 lows while globally the main markets have increased by around 70%
  • In an extended market correction cycle, FM markets will keep outperforming while in a market recovery cycle, FM markets should be able to catch-up with their peers and outperform by 50%

Attractive valuations explain why FM are so well positioned

  • Frontier markets are trading in general at lower valuations with PE multiples of 12.5x vs. 15x for most developed and emerging markets
  • The Silk Invest strategies are even more conservatively positioned with average PE multiples of 11x and Div Yields of over 4%

Our African strategy has outperformed most peers

  • Fund could not avoid market correction in last few weeks but is holding up better than most funds
  • YTD it has outperformed driven by its diversified pan-African exposure and focus on consumer names

Similar picture for our Frontier fund

  • Main fund (Silk Road Global Frontier fund) has only monthly NAV’s but the Luxembourg version (Silk – Road Frontier Fund) shows resilience
  • YTD the frontier strategies have both outperformed by keeping a diversified exposure to all FM regions and focusing on less known names

We hope that this note is useful and we are happy to discuss more in detail how we see markets reacting to factors like Fed policy, global growth prospects, commodity prices and Ebola.

China’s Non-Commodity Africa Strategy

The strategy to capture the African consumer has now moved up the value chain as global automobile brands position themselves in the ultimate middle class consumer good. The potential is huge because large-scale motorisation in Africa has yet to take off.

IHS Automotive predicts that sub-Saharan Africa’s vehicle-ownership rate won’t reach 70 cars per 1,000 people, until 2030. That was a critical turning point reached by China in 2012. Because reaching this point of inflexion for massive automobile sales may take more than a decade, it means that this kind of opportunity is for players that can afford a long term vision.  It is therefore no surprise that we are seeing mostly Asian car manufacturers, less embattled by short term thinking shareholders, teaming up with local entrepreneurs who see value in building a presence over time.

A good example of this is China’s Geely (the owner of Swedish car brand Volvo) teaming up with local distributors/assemblers such as Egypt’s GB Auto to position its automobiles in North Africa where the GB group has been operating for some time now.

Another reality is that Chinese automakers have been losing ground to foreign auto brands over the past two years, emerging overseas markets such as Africa have become a much-needed lifeline. The Chinese auto market has become more competitive as foreign brands such as leading global automobile makes gradually increase their share of the Chinese market.

Apart from Geely, other Chinese brands, such as Chery and Changan, switched their focus to the overseas market, most notably Africa. Major Chinese brands have made a splash in the past year. Great Wall Motors reported about 25,000 deliveries to 200 dealerships on the continent.

However, Africa isn’t exactly an untouched automobile market. Multinationals such as Toyota have been doing business on the continent for decades and in most African countries, the auto parts market is controlled by German, Korean and Japanese companies.

Furthermore, African governments are now constraining the influx of foreign vehicles so simply exporting cars to Africa is no longer sustainable so now the viable strategy is to work with local assemblers or by setting up car factories on the continent. In terms of auto markets, Kenya, South Africa and Egypt are more mature than other countries.

For now the main competitive advantage for Chinese brands is the cheap price. They are effectively filling the gap that Korean car manufacturer’s, who have risen in brand value perception, used to occupy.  We are also seeing how these Chinese companies are starting to customise products for the African market. Foton, for instance, has equipped bigger engines and larger oil tanks for vehicles sold in the Kenya market because most consumers need trucks for long-distance traveling. Great Wall is also designing products for the continent. It designed a model particularly for South African women because they apparently prefer right-sided, automatic transmission cars. The model has been well-received after it was put into the market in 2011.

The race to capture the hearts, minds and wallets of the African middle class with the ultimate consumer product is on!

The bigger picture: China’s Investment Role in Africa – Beyond resources

More than 2,000 Chinese companies have invested in Africa across multiple sectors including natural resource extraction, finance, infrastructure, power generation, and consumer products such as electronics, textiles, home appliances and automobiles.

Africa is emerging as a major consumer market in its own right. Its more than one billion-strong population has traditionally been under-served by formal retailers and consumer goods companies. With rising purchasing power, Chinese-made goods are finding their way into the African households, either through formal retail channels or via vast informal sales networks. Furthermore, despite infrastructure and logistics challenges, local manufacturing in Africa is becoming more profitable.

The industrial manufacturing component of the Chinese economy is now at a turning point as the cost of production surpasses gains in productivity. This initiates the start of a long-term trend as more and more of China’s low-end labour-intensive manufacturing sector is gradually moved offshore. A large part of this offshoring could find its way to Africa.

Manufacturing as a percentage of the sub-Saharan African economy has held steady at 10% to 14% in recent years. Industrial output in what is now the world’s fastest-growing continent is expanding as quickly as the rest of the economy.

Ethiopia is a case in point. The sovereign wealth-capitalised CADFund is financing a special economic zone industrial park to the value of $2 billion over the next decade to create a light manufacturing zone on the outskirts of Addis Ababa. The focus is footwear and clothing. The eventual outcome of this could be the creation of 200,000 jobs, according to some media reports.

More in-depth research

If you would like to take a deeper dive into the recent research about China’s role in Africa, we have put together a list of resources that you may find insightful:

White Paper: China-Africa Economic and Trade Cooperation
Where are Chinese Investments in Africa Headed?
An interesting article that provides more perspective on China’s role in Africa
A paper by the Brookings institution on “Africa in China’s Foreign Policy” 
A paper by China in Africa, An evaluation of Chinese Investment by the Institution for Poblic Policy Analysis (IPPA)




Back to the Future

It has now become obvious that the world economy is shifting back towards Asia, Africa and the Middle East.

Our choice of the title ‘Back to the Future’ is quite deliberate because instead of seeing this macroeconomic shift as a new trend, we actually regard it as a regression to the base-line economic structure of our global civilisation.

In this Frontier Markets Insights episode, we feature a short animation that puts the evolution of the world economy over the past 500 years into perspective and briefly highlights why most global investment portfolios probably aren’t well positioned to benefit from the world’s economic rebalancing.

Silk Invest teams up with Kolo Toure to launch the African Opportunities for Footballers Fund

Africa FootballersWe are delighted to announce that, toghether with Kolo Touré, we are launching the African Opportunities for Footballers Fund. 

Kolo is a well known top level football player from the Ivory Coast who plays for Liverpool and will compete with his national team in Brazil’s much anticipated World Cup

This will be the first fund of its kind and makes it possible for African Football players to manage their financial assets while also investing in the grand opportunity of their home continent.  The fund will be domiciled in Luxembourg  and will primarily invest in the African markets.

Watch the video below for more in-depth information.

We have seen a steady rise of African football players across the top teams in the international arena. Many of these players see themselves as African ambassadors and have shown a keen interest to invest back in Africa. This fund makes it possible for these players to invest in a professionally managed fund vehicle and set the example for other investors to follow.

My personal ambition has always been to contribute to the African continent in a positive manner. At the same time, it is important have sufficient assets to meet the future financial requirements. I am very excited about this new fund and believe that we have achieved a major milestone. This fund helps Africa’s top football players like me to meet their financial needs and support Africa’s capital markets.


African Footballers now finally have a solution that not only allows them to invest their assets in investment opportunities they understand, but also lets them make a difference back home. Over the last months, we worked together with Kolo Toure to design a product which helps African football players to invest for the longterm while contributing to Africa’s growth.


Africa is at the heart of our investment thesis and we believe that African footballers have a big role to play in further developing the continent. We are honoured that we can play a role in helping these African professional to better meet their future financial needs. Kolo Toure has proven to be an excellent partner in creating this fund and we are looking forward to successfully launch the fund


For many years, we have been actively investing in Africa and have always championed a consumer driven pan-African approach. Silk Invest’s investment team includes 11 different African Nationalities from the various African regions.

 Read the official press release






What the Changes in the Frontier Markets indexes mean for Investors

The MSCI reclassification of the frontier markets index helps improve its alignment with the broader investment opportunity in the space by increasing the allocation to African and Asian frontier markets. We produced a short animation to highlight the major changes and what they mean for investors.

The good news is the increase in Nigeria’s weight to around 20% (previously 13%) and Pakistan, Oman, Kenya & Morocco’s to the 5-7% range (vs 3-4%).

Unfortunately, an opportunity was missed to reduce the weight of Kuwait. Its weighting rises from 20% to around 30% of the index. Furthermore, due to its restrictions for foreign investors, despite being the largest market in the Frontier realm, Saudi Arabia remains outside of the index.

Since 2009, at Silk Invest, we have been allocating our investments in greater measure than benchmarks to the frontier markets in Asia and Africa. Rather than take a view on geographic criteria, we focus on investing in companies with winning business models that have a deep population base to support superior earnings growth.

The new index weights to Nigeria, Pakistan, Oman, Kenya and Morocco are moving closer to our traditional weights which is, to a certain degree a recognition of our long term beliefs.

I addition, we remain positioned differently than the index with our bias to Africa (including countries like Ghana and Senegal) and Frontier Asia (especially Pakistan and Bangladesh). Even in the Middle East we have an allocation to Kuwait of approximately 8% vs. 30% for the benchmark and have an allocation to Saudi Arabia of 8% vs. nil for the benchmark.

More about our Frontier Markets Equity investments