New Star Asset Management has announced that it has had to suspend its Heart of Africa fund, after investors made huge withdrawals.
New Star had hoped the fund would allow it to capitalise on the growing demand for African metals and minerals such as gold.
The impact of the credit crunch and subsequent affect on global stock markets has "resulted in an increase in redemptions from investors" the company said in a statement, which, combined with a number of other events, is weakening liquidity in the sub-Saharan markets.
Therefore, with the agreement of Royal Bank of Scotland, its fund depositary, New Star is temporarily suspending its Heart of Africa fund until further notice. The fund was worth £58million at the end of October, but is now valued at just £29million after investors cashed in their shares.
New Star says that it regrets having to take action to suspend the fund, but hopes that the move will restore sufficient liquidity to the fund so that it can meet its redemptions once it reopens.
According to Financial Services Authority (FSA) rules, funds should be suspended or not more than 28 days, so New Star hopes to limit the amount of time it is unavailable for.
"It is with great reluctance that New Star has temporarily suspended dealing in the New Star Heart of Africa Fund." said Jamie Allsopp, manager of the New Star Heart of Africa Fund.
"Since launch last November, the fund has performed relatively well amidst the turmoil of the past year falling 24.40 per cent.
"This compares favourably with the 38.78 per cent fall in the MSCI Emerging Markets Total Return Index.
"The FTSE All-Share Total Return Index has fallen 29.8 per cent over the same period. I still believe, despite this temporary suspension, the fundamental prospects for the region remain attractive over the medium to long term."
Meanwhile, gold prices
have surged on the back of doubts about a bail-out for the US car manufacturing industry. They hit an eight week high yesterday as the dollar fell amid fears that the auto industry was heading for bankruptcy after Republican senators opposed the Government rescue package.
As more people are investing in gold
because of its status as a 'safe haven', gold could approach $900 an ounce, Suki Cooper from Barclays Capital told the Financial Times.
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