Most African markets in the red for June

Only five of the 16 major stock markets on the African continent registered positive returns for the month of June. Zimbabwe’s Industrial Index led the way, mustering 2.33%, with Ghana’s All Share coming in a close second with 2.25%. The Mauritian All Share achieved 0.8% followed by Namibia’s local Company’s Index (0.5%), Botswana’s domestic companies Index (0.32%) and Tanzania’s DSE Index (0.13%).

Uganda’s All Share Index led the declines, plunging 6.38% followed by the All Share indices of Zambia (-4.06%) and Nigeria (-3.43%).  High interest rates on the back of elevated price growth have drawn local investors away from equities, and into the debt markets. The fall in African equities is coming at a time when investors are looking to rid their portfolios of risk, often resulting in currency devaluations and reduced liquidity.  However, fundamentals remain steadfast as a number of economies continue to surge ahead with real growth rates exceeding 5%. By the same token, corporate earnings remain firm with positive signs ahead for the second half of 2011 and into 2012.

With elections in Nigeria completed, non-oil sector growth and earnings up, it is expected that the NSE will generate a turnaround. Nigeria is forecast to surpass Egypt as Africa’s second largest market by year end according to the IMF. The main drawback facing the Nigerian economy is the 10-plus rate of inflation, which has led the Central Bank of Nigeria to increase the policy rate for the fourth time this year up to 8.75%.

Kenya’s misfortunes continued into June with the NSE 20 falling 3.02%, compounded by a 3.72% devaluation in the Kenyan shilling and inflation spiraling to 14.5%. Despite these weaknesses, Kenya’s economy managed to expand by 4.9% in June.  Interest rates remain low as the North faces the worst drought in over 60 years contributing to supply-side shocks. Several new listings are expected through the remainder of 2011, although FDI has fallen due to the expected risk of the upcoming elections.

The 5.95% drop in Zambian equities illustrates the market temperament as forecasts see GDP growth of 6.8% in 2011. Agriculture and mining excelled with output and commodity prices up.

Upon strong fundamentals in Ghana (2nd quarter growth of 23% year on year) and a new oil-producing sector, the equity market surged ahead despite the global slowdown. Similar trends were seen in Botswana with year-on-year growth at 6.4%. Growth in the mining and construction sectors is driving the expansion with further listings expected in 2011.

Although forecast to expand by 4.5% in 2011, Mauritian growth contracted 1.7% in the second quarter due to a slowdown in the construction sector. Fiscal stimulus through infrastructural projects and improved export figures are set to bolster confidence in the market.

With low price-earnings ratios and strong fundamentals, Africa remains the prize in waiting. As the developed markets face turmoil, it is believed that investors will seek the higher returns offered by the African markets. Copyright. HedgeNews Africa – July 2011.