Africa Emerging

With emerging markets providing top performance this year, some investors are going to extremes and trying their luck in such African countries as Egypt, Mauritius, Zimbabwe and Zambia.

After two disastrous years in 1994 and 1995 and a mediocre 1996--with some exceptions, notably stocks in Russia, Hungary and Turkey--emerging markets in aggregate have jumped about 10% so far this year, according to International Finance Corp.’s Emerging Markets Investment Index.

“The timing looks right for emerging markets, and when that happens, people head to the frontier,” said John Niepold, portfolio manager for an African fund at Emerging Markets Management in Arlington, Va. “In the last six months, there’s definitely been a lot more interest in Africa.”

The move to put money into the companies based in more stable African countries is taking place because money managers are finally becoming convinced that market economies there are taking hold.

Nationalization, trade barriers and high-level corruption appear to be receding.

“There is good growth and positive signs,” said Niepold, who returned from 2 1/2 weeks in Africa early this month. Emerging Markets Management, which has an Africa specialty fund, has been investing there for 3 1/2 years. It now owns shares in companies in 13 countries, among them Egypt, Morocco, Zimbabwe, Botswana, Ghana, Ivory Coast and, most recently, Zambia.

Money managers are accepting markets “at the far end of the spectrum because that’s where the 150% returns are,” said Frank Fernandez, portfolio manager at GEM Advisors in New York. His new emerging-markets stock fund, with about $20 million in assets, is invested in Zambia and in Egypt and Morocco.

Indeed, the Egyptian market jumped about 152% between July and late February. Although it’s fallen a bit in recent weeks, it’s still up more than 120% since summer.

The Moroccan market, as measured by its benchmark index of the 25 largest companies, has climbed 46% so far this year, and the Zimbabwean stock market has jumped about 16%.

News of strife in many places in Africa might put many investors off without further consideration: Civil war is tearing Zaire apart, and hostilities are simmering in Rwanda and Burundi. The deadly 5-year-old insurgency of Islamic militants in Algeria has left 60,000 people dead so far. Even South Africa, which has made huge economic strides since President Nelson Mandela took office in 1994, still has 29% unemployment, and about 7 million of its 40 million citizens are homeless.

But for those who have the wherewithal and can afford to take a risk, there may be a great potential for returns.

With the exception of South Africa, “these markets tend to be immature, and the companies have spotty accounting practices and questionable track records,” said Stephen Dexter, who oversees $250 million in emerging-markets investments at Zurich Kemper Investments.

But Travis Selmier, who heads emerging-markets investing at USAA Investment Management in San Antonio, has about $40 million of his $1.3 billion under management in African companies, up from about $30 million last June. His holdings include Suez Cement Co. in Egypt; and South African Breweries Ltd. in South Africa.

Jack Sorenson, portfolio manager at Bennett Capital Management in Burlington, Vt., said he has tripled his holdings in South Africa and Zimbabwe in the last few months, from virtually nothing to about 3% of his portfolio. His favorite companies are Meikles Africa Ltd., which owns food stores, shopping centers and the five-star Meikles Hotel in Zimbabwe, and South African fuel and chemicals company Sasol Ltd.

Among major mutual fund families, Calvert Group has a New Africa fund; Merrill Lynch has a Mideast/Africa fund.