In the past month, CoreData has been developing a picture of how the world’s HNWIs are investing their money, in what looks like a long lasting bear market. What is clear is that the news emerging from Europe and Asia is very different to what we’re seeing here in Australia.
We are witnessing a seismic change in markets, not just away from equities in general, but away from whole countries as investment hubs – as the global market enters its next phase.
For a start, Brazil, Russia, India and China (the BRICS) aren’t as interesting as they once were. The HNWI’s we interviewed declared that the BRIC boom is over, expecting only “normal” market returns from these countries. Instead they were seeking new destinations for their investment capital.
Two markets were persistently mentioned as ripe for investment – Africa and America.
The appetite for American investment is pretty easy to understand – it’s a straight bet on the continued rebirth and growth of an economy that is being reframed as an efficient manufacturing center with a robust indigenous demand.
Africa, an investment market, is of most interest to them – which from the Australian perspective is seen as high risk, unstable, economically and politically irrational and just not worth the risk.
However, it is worth stripping away some of the noise surrounding the African market to discover what is happening there and to find out what this means – particularly for the future of manufacturing.
The “noise” in the African investment numbers is investment in mining – it is such a capital intensive industry that all the investment numbers in the sector dwarf everything else – and at a glance it appears that the lead investors in Africa are the Americans, the Europeans and then the Chinese.
If you strip out the mining numbers and look simply at manufacturing investment, the sheer scale of Chinese investment in Africa (particularly in manufacturing) starts to look really interesting from a global perspective.
Getting a real understanding of the scale of this investment is tricky – African nations tend not to report all investment and the Chinese Ministry of Commerce (MOC) records that by June 2011 there were 1,586 “live” investments in the African market place.
However, these numbers fundamentally underrepresent what is actually going on – the MOC only records investments of greater than $US100 million. Investments between $US 100 and $US10 million require only provincial government records and investments of smaller than $US10 million need no government records at all.
The bigger investments being made tend to be in infrastructure (road, rail and telephony), which Africa is desperate for. So desperate that rumour has it that they are less interested about the source and the structure of the capital than the out put of the investment – which tends to suit hot money leaving ex-communist countries.
The second source of investments, which is largely unrecorded at this stage, is in manufacturing businesses – which are leaving the coastal provinces of China – traditionally the home of low cost manufacturing for Sub-Saharan Africa.
The reasons for this are clear: a lower cost work force, less labour force regulation and fewer pollution controls. China it seems is effectively exporting its heavily polluting industries into nations less subject to controls.
Africa it seems is entering its industrial revolution – almost three centuries after England blacked out its skies with coal fires. It has effectively become the last continent to go through the great upheaval of modernisation.
This week the President of Nigeria, Goodluck Jonathan, met with the Chinese President Xi Jinping for four days – the topic of discussion was methods for easing Chinese investment in Nigeria.
As someone who watches investment markets keenly, it feels like a ship has sailed and, as a nation, we may have missed it.