London fund manager buys into Zimbabwean fund

Written by Editor Monday, 02 August 2010 11:38

Why the time could be right to invest in a Zimbabwean recovery.

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Neil Woodford, a well respected figure in London's investment circles, has invested £25m into securing a 29.5% holding of Masawara, a $80m Zimbabwean fund.

Woodford, who manages £15 billion for Invesco Perpetual, has bought a 29.5% stake in Masawara, a discreet venture expected to list on the Alternative Investment Market (AIM) in two weeks’ time.

According to reports in The Australian newspaper, Masawara will be valued at US$88 million when it is admitted to the market.

The company intends to buy into Zimbabwean mines, oil companies, agriculture, telecommunications and property.  It will also take part in the privatisation of state-held assets.

In the last three years, from July 2007 up to June 2010, Woodford’s High Income fund has lost 11.46% while the FTSE All Share Index dropped 16.23%.  

His Income fund lost 11.45% over the same three-year period.

Gary Parkinson, writing in Monday morning's Times, essentially rubbishes the decision by choosing to describe the Zimbabwean economy as such: "Inflation there is rampant, and food and fuel is in short supply."

This is a dangerously incorrect assumption of the state of the Zimbabwean economy. Woodford is said to manage a £15bn fund for Invesco Perpetual, and if we believe the assumption that inflation in Zimbabwe is still rampant we would be inclined to look upon Woodford as taking huge risks with client money.

The fact is the Zimbabwean economy has started to grow once more, and the situation continues to stabalise, the caricature of an economy in terminal and perpetual decline is simply wrong.

Since the abolition of the Zimbabwean Dollar in late 2008 the economy witnessed a period of deflation as the South African Rand and US Dollar formed a dual currency economy.

In July inflation stood at 5.3% according to the official statistics body; a body that does command respect as it was not shy to report inflation figures of scarcely believable figures two years prior.

The Finance Minister, Tendai Biti of the Movement for Democratic Change, has pencilled in a rate of 4.5% for year end.

Economic growth in 2009 was 5.7. Economic growth for 2010 has been revised down from 7.7% to 5.4% in 2010.

Shops and supermarkets are once again well stocked as are fuel station forecourts - once government economic tinkering was done away with courtesy of the formation of a Coalition Government the economy has been allowed to find some kind of equilibrium due to its positioning in the regional market dominated predominantly by South Africa.  

Masawara intends to buy into Zimbabwean mines and oil companies, agriculture, telecommunications and property as well as to take part in privatisations of state-held assets.

This suggests Woodford has set himself up strongly in a market that is poised for a rebound.

There is huge amounts of spare capacity in the economy, and should the politics continue to improve, Invesco clients should be well rewarded.