Africa not much more risky vs Europe, U.S. crises

LONDON Thu Jun 10, 2010 10:14pm IST

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LONDON (Reuters) - Investors interested in Africa's resources but afraid of its political risks should consider that recent events in Europe and the United States have shown they are far from risk-free, a British fund manager said.

David Murrin, chief investment officer at UK-based Emergent Asset Management, acknowledged Africa could be hazardous for investors but cited by comparison Greece's debt troubles and the banking crisis in Europe and the United States.

"Political risks -- you mean like (former British Prime Minister) Gordon Brown trashing our country or our ally, the United States, blaming us for BP (BP.L) spilling oil," Murrin told Reuters on Thursday.

"We need to wipe out that smug western view of more risk in Africa ... As western belts tighten and we start to deal with fiscal situations, the political risk differential is closing rapidly. People need to wake up to that."

Budget deficits of many developed countries over the past couple of years have jumped to unprecedented levels in the aftermath of the U.S. subprime mortgage crash, the global credit crunch and recession.

Emergent Asset Management, which has four hedge funds covering currencies, bonds, equities and agriculture, plans to launch a private equity fund investing in sub-Saharan mining resources soon.

Murrin would not disclose Emergent's funds under management or any return numbers.

VORACIOUS CONSUMER

Africa's mining industry will grow to meet China's insatiable appetite for metals, Murrin said.

"Africa could rival Chile as the world's largest copper producer at some point in the future."

China is the world's largest consumer of industrial metals such as copper, taking more than 30 percent of global consumption, estimated at around 19 million tonnes this year.

Fears China will tighten its growth policy to restrain inflation, hitting demand, have contributed to a recent sell-off in copper.

Benchmark copper on the London Metal Exchange has tumbled more than 20 percent to around $6,300 a tonne on Thursday from a year-high above $8,000 in April.

But Murrin said any pullback by Chinese consumers would be temporary.

"Chinese demand will fuel prices over the next decade, causing problems for the West because we are not growing and we will import their inflation, we get stagflation," he predicted.

The shift in economic power toward Asia is a trend that Murrin and other fund managers have highlighted in recent years.

U.S. assets including stocks, bonds and the dollar will be a major casualty, he said.

Recently, however, fears of European sovereign debt restructurings have driven the euro below $1.19 against the dollar, its lowest in more than four years. The dollar's trade-weighted index .DXY against a basket of major currencies recently rose to its highest since March 2009.

"The dollar rally we are seeing now is in my opinion, the last time the world will go to dollars for safety," Murrin said.

"Equity markets finished their first leg of the down-move on Tuesday. We will see a period of consolidation before we see another period of risk aversion in July ... The trigger could be renewed concerns about Europe," he added.

(Editing by Jane Baird)

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