Glimmer of hope for African stocks despite bleak outlook

It’s been a tough 12 months for African equities. A quick check across 17 markets shows a bloodbath.

Concerns about slower economic growth and low commodity prices have subdued investor interest. With the global slump in energy and commodities — a scenario that has afflicted most African economies — showing no signs of letting up, indeed more pain is expected ahead.

Besides, with the US Fed now hinting that rates could rise faster next year than investors had been expecting, this could further worsen the situation. If the Fed becomes more aggressive than anticipated, this could accelerate the depreciation of most currencies, which may lead to further portfolio erosion.

In today’s article, I present a quick performance round up on some of the major indices in the continent.

Far up north, the Egypt Stock Exchange had an outstanding rebound this year. The Egypt Stock Exchange (EGX 30) Index led African bourses with a 61.7 per cent rally.

Aided by the central bank’s decision to allow the currency to float as part of measures designed to tackle a dollar shortage that has sapped economic growth, investors have been euphoric.

The move is expected to bring the nation closer to securing a $12 billion (Sh1.2 trillion) loan from the International Monetary Fund which would help attract foreign cash back into the market.

That said, stock investors would still have to contend with capital controls that curb the repatriation of profit, which regulators imposed due to the dollar shortage.

Down south, the continents leading economy struggled through the year. Down 6.85 per cent, South Africa’s main benchmark index has had to bear the brunt of a retreat in emerging markets as commodity prices slipped and investors shied away from riskier assets.

The threat of higher US interest rates may lead to an outflow from the country back to the US where the risks are perceived to be lower.

Be that as it may, a weaker rand is normally good news for the big names on the Johannesburg Stock Exchange (JSE), which earn most of their income abroad in foreign currencies.

To the west, the Nigerian Stock Exchange All Share Index also had a similar performance as JSE. Down 6.7 per cent, the drop was mainly catalysed by a weakened economy.

With oil prices having dropped 55 per cent drop in the last two and half years, Nigeria’s economy has suffered immensely, especially considering its oil exports account for 90 per cent of the total exports. Oil has struggled to stay above $50 a barrel this year.

As a result, in 2015, Nigeria’s growth rate slumped to 2.7 per cent, down from 11.3 per cent in 2010. Furthermore, during this year, the naira weakened by 30 per cent as President Buhari’s administration continues to contend with the slowest economic expansion.

Back home, local equities are still in deep slumber. With the NSE 20 share index is officially in bear market territory — defined as losses above 20 per cent—investors have become weary.

Moreover, headwinds abound with the upcoming elections being a key risk, especially for the next eight months. 

In all, it’s hard to be merry when portfolios are melting, but it really may not be that bad. While there is no near-term catalyst to drive equities higher, it might be time for investors with seven-year views to buy selected African stocks.

So, cheer up. Africa is still rising.

Mr Mwanyasi is the founder and CEO of Canaan Capital Ltd