To everyone's surprise, Africa's tiny stockmarkets not only avoided the tumult that gripped more developed markets last year but actually outperformed many of them. But there is still a long way to go.
In times of sluggish corporate earnings, record low bond yields in major OECD markets and huge Forex losses in Russia and South-East Asia, international fund managers are seeking more profitable investment channels. There is in fact an emerging region which enjoyed real GDP growth of 3.5% in 1998, falling inflation and fiscal deficits in most countries and cheap valuations allowing for positive USS returns. In short, a dream market for investors who sustained heavy losses in major developed and emerging markets.
Surprisingly, this favourable investment-profile belongs to the fledgling stock markets of Africa, which are still largely undiscovered by institutional investors. Defying global financial volatility and weak world-wide share prices in 1998, some African markets bucked the trend and retained positive growth figures. Despite downside corrections among strong performers like Ghana, Botswana and Mauritius since the second half, profit-taking has meant that Africa, in effect, outperformed other regions.
While the Morgan Stanley Capital International emerging markets index plunged 24% towards the end of 1998, Standard Bank reports that sub-Saharan bourses, excluding the JSE, declined 14%. Foreign portfolio investment rose, albeit modestly, in 1998, attracted by a new regional market, the Bourse des Valeurs Regionales Mobilieres (BRVM), based in Abidjan.
In Ghana, sound economic fundamentals, the cedi's stability and declining yields on treasury bills underpined the Accra bourse. Botswana managed to sustained its impressive 1997 rally and analysts see commercial banks and the Sechaba Brewery as attractive stocks. But the market is vulnerable to weaker diamond prices and sales which will lead to a growth slowdown in 1999. Cote d'Ivoire is seen as a future growth market, underpined by the CFA franc's peg to the euro, with solid medium-term growth. However, the performances of leading bourses fell far short of their potential.
A plunge in the Zimbabwean SE industrial index in 1998 reflects low business confidence amidst political-economic uncertainty and the tumbling of the Z$ to new lows of 38:$1. Higher yields on T-bills also reduced the markets attractiveness, while earnings were dented by a weak GDP growth of below 2% and spiralling...