From Gary Booysen on the top floor...

Dear Reader,

Rubber bullets thudding into striking workers as police choppers circle Baragwanath hospital...

Illegal gold miners being hunted by gun-toting mercenaries in twisting tunnels of misery...

And a pro-boxer testifying about how he killed a powerful mining magnate in the murder trial of a mafia boss!

There's really never a dull moment down here at the tip of Africa.

And yet, despite the madness, foreign funds flood across the border as international companies seek the next frontier investment!

The latest news is that HSBC has swallowed up our last big bank like a tasty snack. Which is hot on the heals of the the Didata acquisition by Nippon Telegraph and Telephone Corporation.

It's no wonder the rand continues to strengthen! But how do we take advantage of this flood of emerging market investment.

It might be too late to take advantage of the South African story (our markets already up 48.94% from last years low) but Money Morning's UK editor, David Stevenson, might have struck on something when he presents his investment case for Zimbabwe.

Overseas money managers are beginning to turn their attention towards that frontier market and as a South African you have unique access through the JSE.

So, is this the real deal? Or will Zimbabwe still be a basket case come 2030? Let's take a look...

***************************
Zimbabwe: a world leader in hyperinflation

Mention Zimbabwe to almost all investors and you'll probably get a very negative reaction. And that would be no surprise at all. It's an African state that's gone horribly wrong — and then some.

Now I'm not going to attempt even a potted political history here. That's not what MoneyMorning is about. But this quote from the independent Zimbabwean economist Vince Musewe, writing in MoneyWeb, just about sums it up.

After Zimbabwe got its independence in 1980, "in our naiveté we assumed we'd witness the rise and rise of a liberal and democratic social economy", he says. "With an educated populace, our expectations were that we'd inevitably become the 'intellectual' capital of Southern Africa, if not Africa. How wrong we were!".

To cut a long story short, the economy became a total disaster area. The government mismanaged things badly. The "land grab" from white farmers ten years ago led to a collapse in food production. GDP and exports slumped, while unemployment hit a staggering 80%. The country got involved in the war in the Congo, which proved terribly expensive.

And the whole place has been riddled with corruption.

Indeed the only area where Zimbabwe actually became a world leader was in its inflation rate. Or to be more precise, its hyperinflation rate.

The country had long had a nasty inflation problem. But when the government started minting money by the ton to pay its bills, the rate really took off. It reached over 100% a year in 2001. Yet the printing presses were simply cranked up even more. Arrears owed to the IMF, salary payments for public workers and soldiers - they were all paid for by simply producing more and more banknotes.

Of course, this doesn't create any more wealth. It just pushes up prices. By December 2008, the cost of living was rising at "6.5 quindecillion novemdecillion%" a year, according to Wikipedia. I'll take their word for it — but in practice, it means prices were doubling every 1.3 days.

That puts the inflation targeting problems of the South African Reserve bank governor Gill Marcus, who's wrestling with the CPI at 4.2% a year, right into perspective.

***********

Why would anyone invest in Zimbabwe?

In fact, Zimbabwe seems like it's been on a completely different planet. So why on earth, you're probably asking, would anyone want to invest good money in a country like this? Surely there's no point in even thinking about such a place?

Well, here's the surprising bit. The outlook for the country is gradually picking up. Just over a year ago, the government stopped printing the Zimbabwean dollar. Zimbabwe now allows trade in the US dollar and the euro, sterling, South African rand and Botswana's pula. Inflation actually fell below zero within weeks of the move.

Sure, the inflation danger hasn't gone away. And there are still "smart" economic sanctions in place. Without getting into the politics, President Mugabe doesn't have a good reputation on the human rights front.

But the economy is starting to recover. Civil servants are being paid again, which has meant schools and hospitals could re-open. There are plans for a privatisation programme. And the economy is backed by significant mineral wealth that's yet to be exploited. It could yet realise those hopes of 30 years ago.

Now we've heard this sort of thing before about Zimbabwe. At the end of last year it was described as the "ultimate recovery story" by Ambrose Evans-Pritchard in The Telegraph. Yet the economy is still hugely dependent on imports to survive.

But this month, another reason for eyeing Zimbabwe has just appeared. Top fund manager Neil Woodford has just used over £15 million (R171 million) of the money he manages for Invesco Perpetual, to buy a near-30% stake in a Zimbabwean firm called Masawara (LN: MASA).

The group invests in the country's agro-chemical, insurance and property sectors. It's also planning to move into oil, mining and agriculture, as well as buy privatised assets. Masawara has just floated on London's AIM market at 50p/share - the shares were trading at 54p on Friday, and 59,000 changed hands according to Bloomberg.

Should you invest in Zimbabwe?

So what should private investors make of all this? And should they follow Woodford by buying into Zimbabwe?

Of course, the Invesco Perpetual star player doesn't get it right all the time. He's backed a few wrong horses and clearly Zimbabwe is a high risk and controversial bet that could yet go very awry.

But Woodford is no short-term punter. He's a long-run income fund investor who can sniff out a real bargain and is prepared to give it enough time to be recognised by the rest of the market. So when he put that amount of money into somewhere as offbeat as Zimbabwe, it's enough to make me think it's worth doing likewise.

To repeat, this would be a high risk, long-term investment. It would be sensible to keep it as a relatively small part of your portfolio. But over several years, it could pay off incredibly well.

If you feel like following Woodford, but don't like the idea of Masawara, alternatively there's Lonrho (JSE:LAF). The Executive Chair, David Linigas, is commitment when he says: "Up until a few years ago, Lonrho was the biggest employer in Zimbabwe and my job is to make Lonrho as big again as it was, as quickly as possible."

Lonrho deals in hotels and logistics but its primary interests come from the agricultural and infrastructure sector. It has showing some organic growth (revenue is up 45%) but has been very active in acquiring new businesses and this should pay off in the longer-term.

David Stevenson & Gary Booysen
For Money Morning

****************************
Have you seen our new trading portal?

Click here to visit TradingTips, your gateway to trading success!
****************************
Know of a colleague or friend who will benefit from today's Money Morning?
Forward this email onto them so that they too can start taking advantage our brilliant investing commentary. And if they want to subscribe all they need to do is click here!

*******************************

If you really like our service, why not tell us about it? We'd really appreciate
you leaving a testimonial! Just click here.

*******************************

PRIVACY POLICY: “We HATE spam, possibly more than you do. That’s why we will never, EVER pass your details on to any third party companies. That’s a promise.”

****************************
Since Money Morning is completely free email, we necessarily fund our operation with occasional – and carefully selected- advertising and offers. All of these opportunities are ones we believe you will find interesting.  However we will keep our promise and NEVER give your email address to any other companies.

*************
Copyright (c) 2010 Fleet Street Publications Pty (Ltd)
 
You are receiving this email because you have given us permission to contact you.

Unsubscribe from this e-letter? If you do not wish to receive further such emails, please click on the link

Do you have a query? Please do not reply to this email. Messages to the sending address will not be seen by customer services. All email correspondence should be sent to: queries@fsp.co.za Customer Services 0861 114 365.

Syndication

If you'd like to put Money Morning articles on your website, for free, please email - syndication@fsp.co.za.

IMPORTANT: We do require that: 1. You ask permission first, 2. That you do not use our articles until we have confirmed that you can, and 3. That you clearly attribute any article you use to us, and paste a link back to www.fsp.co.za.

Warning: Stock/option trading involves high risks and you can lose a lot of money-you may even lose all the money you invested. So please, do not invest with money you cannot afford to lose. Past Results are not necessarily indicative of Future Results