Our coverage of African stock markets have generated considerable interest among readers who wish to participate in the markets for the first time. However, many of them have written in to say that they do not quite understand how the markets work and how they can earn dividends by buying and selling shares. Our stock market correspondent, Andrew Album provides a easy-to-follow introduction to the African market and explains some of the terminology used in the bourses.
According to World Money magazine, Africa now has 16 active bourses (markets where traders meet to buy and sell shares) with a total capitalisation between them of over $260bn i.e. the monetary value of the stocks and shares offered in these markets. Three further exchanges are planned for Uganda, Tanzania and Madagascar, whilst there are also plans for a unified West African bourse.
They range in size from South Africa's huge $225bn exchange, to the market in Botswana, which has a value of under $400m and are spread across the continent, from Egypt, Morocco and Tunisia in the north, through Cote d'Ivoire and Nigeria, to Namibia, Botswana, Zimbabwe and South Africa in the south.
Whilst many have only been established in the last decade, a few have longer histories, the oldest being Egypt's Cairo exchange, which was originally set up in 1881. As these markets have grown, so have the returns. Gains of 107.5%, in dollar terms, were attained by Kenya in 1994, whilst the Ghanaian market grew by 65.39% in the same year.
The reason for this recent development is two fold. Firstly, with economic development has come increasing prosperity for some Africans. This has created a domestic base of savers, looking to protect their money against the effects of inflation and to achieve a capital return.
For investors with surplus capital, any where in the world, there have always been a choice of areas in which to invest. The first is what is described as "real assets", such as gold, precious metals, commodities, land and property. The second is interest-bearing investments such as bonds (certificates issued by governments or companies in order to raise debt on which interest is paid until the redemption date, when the notes are repurchased for their face value) and bank deposits. The third is what is known as "asset-backed" investment, which is principally shares or equities.
The second reason for the development of stock markets across the region is also linked to economic development. For...