How to win- and lose - portfolio investment.

Author:Postel, Eric

Our guest commentator this month is Eric Postel (left), Principal, Pangaea Partners Limited, who was invited to discuss the do's and don'ts of African capital markets at the African Stock Exchanges Association Conference in Cairo late last year. We reproduce his vital contribution.

First, let me say that the most important thing to observe is the great strides that many of you have made in improving your market's infrastructure. There is much to be genuinely proud of.

However, it is clear that you already know that more work needs to be done if you wish to expand overseas investment. It is unfortunate but true that Africa faces a playing field tilted against it. It's not sufficient to be as good as other markets, you must be better. Your markets and their infrastructures need to be equal to or better than those of Malaysia or the Czech Republic, for example, if you wish to attract funds from overseas that otherwise would have gone to them.

Numerous examples in Africa and elsewhere show that it is possible to run a stock market without, for example, implementing the G-30 recommendations or other modern elements of markets. Of course I'm not advocating a return to street trading but it is simply not true that the modern infrastructure is the only possible structure for a market. What is true is that foreign portfolio investors have certain requirements and if you wish to attract them, those requirements must be met. If you don't wish to attract them then, unless your local market demands similar things, you are certainly free to ignore the comments of these investors. Each of you are best qualified to analyse the costs and benefits for your own market in this area.

For those who do care about foreign investors' concerns, I took the liberty last week of confidentially talking with most of the main offshore emerging markets fund managers who are investing in Africa. In short, they felt that almost every single African country had at least some small structural or operational matters in need of improvement.

In an effort to give you concrete food-for-thought instead of just general comments - all of which you have heard before - I'm going to relay to you the specific issues they raised. In doing so, there may be some misunderstandings in the examples cited. But even in that case there is a problem because it means that even investors who spend all of their time investing in Africa have an inaccurate impression about your market. If they have the wrong information, can you imagine what everyone else thinks...

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