Currently, the questions capital markets in Europe and the US are struggling with are: Will we only have higher inflation or will we also have economic stagnation? Are we going back to a scenario like in the 1970s? Back then, horrendously high crude oil prices (which don't seem high from today’s point of view) led to so-called stagflation, an ominous combination of high inflation, a sluggish economy and high unemployment.
Should economic growth grind to a halt, it will likely take months to eliminate the delivery bottlenecks caused by the Covid-19 pandemic and Russia’s war against Ukraine. We are not sure if this unfortunate scenario will materialise in Europe and the US. What we can say is that stagflation is not what we expect for Africa.
Africa has had higher inflation rates than the northern hemisphere for years. This fact, however, has not put much of a brake on its economic growth. Sure, higher import prices for industrial and consumer goods will negatively affect Africa's economy. But given the African economy’s inherent dynamism, we believe that its capital markets will shrug off the effect.
Our view is that the prospects for African equity markets this year are better than those for those in Europe and North America. We expect that exporters of natural resources as well as companies that have strong pricing power and a strong brand to outperform. We will talk about one of them, Sasini, in this newsletter. Investors should keep an eye on African banks, as we will discuss next.
African financial shares are the big winners of last week’s uptick on international capital markets. On Johannesburg’s stock exchange, Absa Group (ISIN: ZAE000255915) gained nearly 15% to ZAR 187.80 (EUR 11.34). Standard Bank Group (ISIN: ZAE000109815) also was up 9.2% to ZAR 171.26 (EUR 10.34) and Capitec Bank Holdings (ISIN: ZAE000035861) put on 8.6% to ZAR 2215.81 (EUR 133.83). Absa, Standard Bank and Capitec Bank are all based in South Africa.
On the Lagos Stock Exchange, Ecobank Transnational shares (ISIN: TG0000000132) rose 8.6% to NGN 11.95 (EUR 0.0259) last week, while Access Bank (ISIN: NGACCESS0005) climbed 3% to NGN 10.40 (EUR 0.0225). Prior to last week, Access’ stock had lagged behind its peers due to uncertainty about its 2021 results. But after the Nigerian bank reported a 51% jump in profit to NGN 972 billion (EUR 2.1 billion) for 2021, its share caught up
On the Egyptian stock exchange, the share price of Commercial International Bank (Egypt) (ISIN: EGS60121C018) rose 3.8% to EGP 42.55 (EUR 2.44). Meanwhile, investors remain cautious about EFG-Hermes Holding (ISIN: EGS69101C011), as Egypt’s leading investment bank has yet to publish its 2021 results. Those will come out next Wednesday. EFG-Hermes’ share price stagnated last week at EGP 17.34 (EUR 0.99).
Investors seem to be banking on African banks after the US Federal Reserve raised its key interest rate last week and announced more rate hikes in 2022. Since African banks are already able to charge interest on loans, they are likely to benefit from rising rates quicker than their American and European peers.
Zambian mining company Copperbelt Energy Corporation or CEC (ISIN: ZM0000000136) is one of the most surprising stocks on the Lusaka Stock Exchange. Between 11 November 2021 and 9 February 2022, the stock price was flat as a board, trading at ZMW 2.66 (EUR 0.14). But on 21 February, CEC’s share price suddenly rose 29.3% to ZMW 3.44 (EUR 0.17) and has remained at the level since.
We can name several good reasons why the market is valuing the stock higher. 1.) In 2021, CEC’s earnings jumped to EUR 45.9 million from EUR 8.5 million – more than a five-fold increase compared with the previous year. 2.) Much to the relief of its investors, CEC settled a dispute with the Zambia Electricity Supply Corporation (Zesco) over payments. 3.) Finally, CEC has reduced its bad debt to EUR 11.7 million from EUR 85.6 million.
But honestly, would you buy a stock that suddenly jumps in price like that? For us, trading volume in CEC shares is far too low to consider it an investment. It is a pity.
Sasini (ISIN: KE0000000430), a Kenyan supplier of tea, coffee and macadamia nuts, is holding up well amid the downward trend on equity markets. While the share is down 8% since the beginning of March, it has gained 2.5% in the past five trading days. It seems that Sasini is benefitting from the fact that it is the only Kenyan tea and coffee company focused on the domestic market. Sasini’s competitors are more export-oriented and, hence, suffering from the uncertain geopolitical situation.
In January, Sasini reported that net income increased 45.5 times to KES 573.2 million (EUR 4.5 million) in the financial year ended September. According to “Business Daily,” Sasini attributes the substantial increase to higher sales and profit margins. But: How is this possible with just tea, coffee and nuts? The numbers raise more questions than they answer.
We think that the higher sales of these goods are just one factor driving the share. Sasini also operates its historic farms in Kiambi county, which is a few kilometres north of the Nairobi city limits. Urbanisation should also move its share price going forward.