A case in point is the mobile theme, while there has been significant growth of mobile penetration across the continent over the last decade; data penetration (as seen through internet penetration) remains low. We believe this represents an opportunity for investors as the increase in internet usage will support earnings growth for mobile players and other industries like banking and retail.
Infrastructure development also represents a key investment theme for the African continent. When travelling across Africa, it is abundantly clear that there is an infrastructure deficit, whether it be the rail or road network, housing or electricity production. To this end, we have seen an increase in the number of projects catering to those deficiencies in our key markets. We feel this adds to the investment case for African corporates as improvements in infrastructure will reduce the cost of doing business over the medium term, thereby underpinning earnings growth.
Our Approach to Investing in Africa ex-SA Equities
African equity markets give long-term investors access to an under-penetrated growth story. We do however note that operating environments are undoubtedly challenging. We therefore believe that selecting companies with quality and innovative management teams, with a strong track record of value creation is critical to investment success. Collectively with over 20 years of being active on the continent, the ALUWANI Africa investment team has deep roots and relationships in the continent. This, together with our robust process, ensures that we are in a strong position to deliver on our commitment to our clients, and that is sustainable risk adjusted returns over time.
Besides the structural story, the case for Africa equity is further supported by cheap valuations and a clear diversification benefit to South African investors. The latter ensures that as an investor you can reduce the overall risk to your portfolio through an allocation to Africa equity. This is evident by Table 1 overleaf, with the correlation of South Africa to our key African markets being less than 30% and in some cases negative. We therefore believe that an allocation to African equity compliments an allocation to South African and global equity for investors. Table 2 further cements the investment case for African equity as attractive valuations relative to emerging and global markets and presents a unique entry point.
