Emerging market stocks have been particularly volatile this year, amid worries about shifting U.S. monetary policy, slower economic growth, geopolitical tensions and a devastating outbreak of Ebola. But investors appear to be remarkably at ease with the risks.
The latest evidence: The New York Times reported on Friday that investors have been snapping up African sovereign bonds this year. Sub-Saharan nations have raised some $7-billion (U.S.) by issuing bonds so far in 2014, according to data from Dealogic. That's more than in all of 2013.
More than a dozen African countries have tapped the debt market, including Nigeria, Ghana and Kenya; prior to 2006, only South Africa had issued bonds, with others typically raising money through foreign banks and government aid. What's more, yields on some newly issued bonds have fallen, reflecting greater confidence in the local economies, even as the World Bank estimates that the Ebola outbreak could end up costing the region an astounding $33-billion.
"It shows the opening up of Africa to private capital. It shows that private capital is replacing development aid as a source of capital flows to the continent, and that's good," said Kingsley Chiedu Moghalu, the deputy governor of the Central Bank of Nigeria, in an interview with the Times.
The takeaway is clear. Despite concerns about Africa, and emerging markets in general, the longer-term view remains optimistic.
According to Dealogic, overall African debt sales are above $18-billion in 2014, the second highest value in a decade, after 2013. Initial public offerings are valued at nearly $1.4-billion, the highest since 2010.
Admittedly, most African nations aren't yet considered to be emerging markets, but rather frontier markets. But the lines between the two are growing increasingly blurred as investors look for fast-growing economies with young workforces and rising affluence among consumers.
The global asset manager GMO continues to believe that emerging market stocks hold the best long-term potential over the next seven years, with expected returns of 3.7 per cent a year after inflation. That stands out from expected losses on U.S. large cap and small cap stocks, and only slight gains on international large-cap stocks.
The hard part: It still isn't easy for investors to gain access to sub-Saharan Africa. Emerging market exchange-traded funds tend to limit themselves to South Africa, which acts as a decent proxy for the region given the country's corporate expansion abroad.
Otherwise, the iShares MSCI Frontier 100 ETF (symbol: FM in New York) contains Nigerian and Kenyan stocks among its top holdings, but also contains stocks from Kuwait, Pakistan, Argentina and Vietnam. The diversification hasn't hurt though. The ETF is up about 10 this year.