Tuesday, 13 March 2007

Zimbabwe - the investment opportunity

As the chaos in Zimbabwe gets worse, with harrassment of the opposition movement and trade unions increasing, at least some people can see the bright side. With impeccable timing one fund management outfit is launching a Zimbabwean fund. The logic being that the country will have to reform sooner or later, and when it does investors can make out like bandits.

The text below is taken from an article in the FTFM supplement to the FT which comes out on Mondays. The full article is here but you will need a subscription to view it.

Conventional wisdom has it that the time to invest in an asset is when it is out of favour. If so, a Zimbabwe investment fund launching this month could prove a stroke of genius.

In what it admits to be a "contrarian recovery play", Botswana-based Imara Asset Management is launching a fund dedicated to a country where inflation is estimated at 2,500 per cent, real GDP has halved since 1999 and an all-powerful despot shows no signs of relinquishing power any time soon.

Imara's own fund documentation cautions investors that they face hyperinflation, political risk and the danger that assets may be nationalised. "A permanent loss of capital is possible," it adds helpfully.

However, John Legat, chief executive of Imara AM and lead manager of the fund, prefers to look on the bright side. "Inflation is estimated to be 2,500 to 3,000 per cent and there are very few regimes around the world that survive that," he says.

"We believe the economic situation is unsustainable and Zimbabwe will be forced to adopt a reform programme like much of Africa before it. Such a programme would result in a sharp re-rating of Zimbabwean assets in US dollar terms."

Mr Legat, who has lived in Harare for the past decade, adds: "When the Berlin Wall fell you couldn't invest in eastern Europe because it didn't have a stock exchange. Zimbabwe is a country with a well developed financial system, stock exchange and pension fund industry, very good infrastructure, good mining prospects and good economic potential. It is potentially an explosive market in terms of upside."

1 comment:

Anonymous said...

In September I would have speculated that MS would not be treating a first-tier Orange Country business investment like Blackstone this way. But as the Fall has progressed and the potential liability increased it is clear that banks are willing to risk even their largest clients to wriggle away from some of these deals.