Johannesburg — UP TO $94bn of foreign inflows could flood into emerging markets in the next three years, with Africa attracting a decent portion of the cash, according to Steve Minnaar, head of equity research at Old Mutual Investment Group SA (Omigsa).

If SA were to remain politically stable and economically healthy, the country could find itself a recipient of a fair slice of the money that is now roaming the globe in search of better returns than the US can offer.

Minnaar said US fund managers needed returns of 10% and more but US bonds, equity and cash would not provide this. Private equity firms and absolute return funds particularly had hit a bit of a wall and had to look elsewhere.

The 16 emerging markets were attracting attention.

"In the fourth week of September alone, $13bn was withdrawn from US, Japanese and European equity funds and a little from money markets funds," said Minnaar, referring to the subprime crises that have been rocking global markets since August .

"Up to $5,5bn of this went directly into emerging market funds."

Global banking group Citi's latest chief investment officer poll, which canvassed people with more than $1-trillion in assets under management, found that portfolio managers would bump up their emerging market funds from 5,7% to 15,1% over the next three years while cutting down US exposure and maintaining their exposure in Europe. The amount of cash allocated to emerging markets, excluding Asia or Latin America, would grow from 0,4% to 3,5%.

While Minnaar seemed convinced emerging markets in Africa would attract capital as subprime woes rocked more developed economies, others were not so sure. In Merrill Lynch's latest emerging markets research, SA may have been viewed more positively than other African economies, but it was not looking as strong as the Czech Republic, Israel, Poland, Russia and even Turkey. This was when measured on equities, bonds and currencies. Not standing SA in good stead was its large current account deficit, inflation risks and moderately slowing demand for stocks.

But Minnaar, who had done some extensive homework, whipped out a graph to show that in the past 101 years South African equities had offered the third-best real returns in the world.

Of course one adage in the investment world is that the past is no indicator of the future, but Minnaar was optimistic about Africa's "virtuous circle". He saw this circle as including Nepad reforms, gross domestic product growth that outstripped the developed world, sharply increasing consumerism, a rise in political stability and growing foreign direct investment.

For locals who shared Minnaar's views, he suggested a number of stocks that would give the investor emerging market exposure that stretched beyond SA's borders. The stock picks were Anglo American, BHP Billiton, MTN, Standard Bank , Naspers, Dimension Data, SABMiller and, in time, Shoprite, Vodacom and Telkom.