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Posted on 18 July 2012.
With the traditional emerging economies slumping, it is time to take a look at the Market Vectors Africa Index ETF (NYSE: AFK), which is an Exchange Traded Fund (ETF) that invests in fast growing companies that do business in Africa. Investors looking to invest in fast growing emerging economies usually consider Asian and Latin American countries without considering the fast growing emerging economies on the continent of Africa, despite the fact that Africa now has some of the top ten fastest growing economies in the world. With plentiful natural resources and hundreds of millions of people expected to move from poverty to working or middle class lifestyles in coming decades, the growth potential for African economies is enormous.
One of the easiest ways to invest in fast growing emerging economies in Africa is by buying AFK, the Africa Index ETF, which buy equities to replicate the performance of the Dow Jones Africa Titans 50 Index. The Africa Index ETF is designed to invest at least 80% of its total assets in equity securities, which may include depositary receipts, of companies either located in Africa, with primary stock listing on an exchange in Africa, or revenues that are derived at least 50% from business activities in Africa. The Africa Index ETF has investment exposure to a broad range of sectors and African countries.
There are some risks that must be considered by investors contemplating an investment in the Africa Index ETF. Many economies in African countries have only started to emerge recently from their undeveloped state to a developing state of rapid growth. While recent economic developments in African economies are encouraging and are expected to continue for decades, with the potential for explosive growth; there are no guarantees that these emerging economies will continue to grow in a manner that rewards investors in the Africa Index ETF. The Africa Index ETF has only traded for a few years and has yet to exhibit a strong record of growth and returns. Political instability and corruption could cause emerging African economies and the Africa Index ETF falter.
With economies from Asia to North America to Europe slowing, the Africa Index ETF may have some tough times ahead in the near term; however, in the longer term, the potential for explosive growth in economies across Africa could lead to above average returns for those invested in the Africa Index ETF.
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