The August Fall

African stock markets continued their downward trend in August as eight of the eleven main markets fell further into the red. Leading the trend was Nigeria’s NSE All Share which dropped 10.2%, followed by Egypt’s EGX 30 which shed 8.54% during the month. Kenya followed closely, losing 6.87%, with the Zambia All Share down 6.62%. Other markets in the red included the Mauritian SEMDEX (-4.11%), Namibia’s All Share (-2.8%), Ghana’s Composite (-2.15%) and the Zimbabwe Industrials (-1.93%).

The month’s top performer was Morocco with the CFG 25 gaining 2.61%. Tunisia’s TUNINDEX returned 2.08% with Botswana’s Gaborone Index managing 1.5%.

Global debt concerns continue to drive world markets and sub-Saharan markets experienced hefty losses as trading volumes declined in August, with outflows prompted by global safe-haven concerns.

Investors also continued to favour fixed income over equities due to attractive yields.

On a year-to-date basis Nigeria and Kenya have declined by a respective 14.36% and 22.92%.

Kenya’s woes deepened in August as inflation climbed to 16.67%, mostly driven by high food prices according to the Kenyan Central Bank. The shilling lost value in trading as the Monetary Policy Committee reversed its 175-basis-point increase after just two weeks. The interbank lending rate reached 31.4%, 25.15% higher than the 6.25% prior to the policy hike, according to Reuters, but has since subsided.

As returns on Kenyan bonds rose into double-digit figures through August due to the declining macro situation, investors reduced their equity exposure. With elections in 2012 and the current humanitarian and agricultural crisis in the northern territories of Kenya, investors have plenty of reasons to look elsewhere in 2011.

Nigeria’s inflation outlook appears fragile as the new minimum wage policy and deregulation of the petroleum products policies take effect. The minimum wage was revised by 100% to 18,000 Naira ($114) in August. As inflation is expected to rise, the policy rate was lifted in late July by 75 basis points to 8.75% with further hikes on the cards.

As Nigerian interest rates have risen by 225 basis points on a year-to-date basis, the trend towards greater holdings in debt instruments explains part of the outflow from equities. Thee-year sovereign bonds inched upwards in August trading while expectations see a continued rise in the coming weeks.

Banks accounted for the largest losses in August as the Asset Management Corporation of Nigeria (AMCON) nationalised Mainstreet, Keystone and Enterprise banks. Many saw the action as a positive move to restore stability in the Nigerian financial markets.

Egypt suffered significant losses throughout August as several factors impacted on the market. Most notable were the political tensions bent by delayed political reform, which haves raised the country’s risk profile. Private-sector results were restrained on the back of heightened wage demands, while new tax legislation has placed extra pressure on corporate profits.

Tunisia’s stock market (BVMT) posted gains for the third month running as the construction and industrial sectors drive growth. The gains are also coming at a time when tensions in Libya are seen to be subsiding.  Banks have been the biggest losers, falling approximately 20% year to date. Investors have viewed banks as risky due to loans made to figures of the previous regime not being repaid.

The BVMT publicised its new five-point development strategy with a completion date in 2013. The strategy includes improving investor awareness, human resource development, deepening the market through enhancing listing eligibility, enhancing bond market efficiency and importantly, the introduction of a new electronic trading platform.

Zimbabwe’s ZSE is currently undergoing a modernisation drive and will be implementing a number of changes in the coming months. According to the ZSE, the bourse is aiming to set up electronic trading by late 2011 and is likely to include a Central Securities Depository and shareholding platform.

The modernisation project includes the establishment of other financial markets, such as derivatives and commodities exchanges. Legislative changes are in motion to set up a new financial services regulator, while plans to demutualise the exchange by 2013 are under way.

Morocco’s CSE is taking steps to ramp up listings and growth of small and medium-sized enterprises (SMEs). The bourse is offering grants of D500.000 ($63,740) to SMEs that generate funds through an IPO between July 2011 and December 2012.

Although the 2.5% to 5% cost of an IPO on the CSE has been criticised for detracting from the number of potential listings, the first listing to receive a grant, by engineering and construction company STROC Industrie, achieved large success in sourcing funds.

Tanzania’s DSE expects a boost as it prepares for a further three listings in 2011. The first is an IPO by airline company Precision Air in September while two London-based resource companies are expected to cross-list in the coming months.

Current restrictions on foreign ownership in Tanzania are being phased out to come in line with the East Africa Common Monetary Union. At present there is a 60% limit on foreign equity ownership while sovereign debt is prohibited from foreign purchase.

Rwanda’s bourse adopted a new T+2 settlement cycle in early August, made available by the implementation of the Rwanda Integrated Payment and Processing System. This replaces the T+5 (equity) and T+3 (bonds) settlement cycle while the exchange has further plans to convert to an electronic trading platform by June 2012 to improve competitiveness. Copyright. HedgeNews Africa – September 2011


Market results        
Country Local Index Local Index return (Aug) Local Index (YTD)
Nigeria All Share -10.12% -5.08%
Ghana GSE Composite Index -2.15% 17.99%
Kenya NSE 20 -6.62% -16.84%
Egypt EGX 30 -8.54% -28.89%
Botswana Gaborone Index 1.50% 12.05%
Tunisia TUNINDEX 2.08% -13.75%
Morocco CFG 25 2.61% -11.51%
Mauritius SEMDEX -4.11% 2.32%
Zimbabwe Industrials Index -1.93% 8.21%
Zambia All Share -6.87% 20.69%  
Namibia Local Companies Index -2.80% 5.87%