Despite Russia’s invasion of Ukraine and rising interest rates, African stock investors had a good first quarter of 2022. This is especially true of investors whose holdings are denominated in euros and US dollars. We look at which stocks are in demand currently.
Capital News Africa: From the Trading Floor – Week 14-2022
At first glance, the performance of equities listed on the Johannesburg Stock Exchange (JSE) in the first quarter doesn’t look like much: just around 3%. But if you factor in currency effects, South African stocks had a better quarter than US or European ones. In US dollars, South African stocks were up 12.4% for the period. In euros, gains in these stocks were as high as 15.5%.
That said, there were wide disparities in the performance of individual stocks on the JSE. While shares in tech group Naspers (ISIN: ZAE000015889, market capitalisation USD 45.3 billion) lost 30% in the first quarter, shares in mining firm Anglo American Platinum (ISIN: ZAE000013181, USD 36.4 billion) put on 12%.
Like elsewhere, African stock prices were driven by the geopolitical tensions of the first quarter. Russia’s invasion of Ukraine on 24 February happened at a time when developed countries were already struggling to deal with higher prices on crude oil and higher inflation. The higher inflation in those countries led to an uptick in interest rates for the first time in ten years.
In addition, commodity markets were already tight due to supply bottlenecks caused by the Corona pandemic. This, combined with the geopolitical tensions, led to a new situation on equity markets. Indeed, concerns about the world’s supply of raw materials prompted higher demand for commodity stocks on the JSE.
Here are that bourse’s winners for the first quarter: Kumba Iron Ore (ISIN: ZAE000085346) with a 50% gain; Gold Fields (ISIN: ZAE000018123) up 32%; Sibanye Stillwater (ISIN: ZAE000259701) up 22%; and the oil conglomerate Sasol (ISIN: ZAE000006896) up 39%.
African banks traded on the JSE were also among the winners. They include: Firstrand (ISIN: ZAE000066304) with a 27% gain; Standard Bank (ISIN: ZAE000109815) with a 31% gain; Capitec (ISIN: ZAE000035861) up 14%; Absa (ISIN: ZAE000255915) up 25%; and finally South African asset manager Investec (ISIN: ZAE000081949) with a 13% gain.
Investors are betting that the uptick in interest rates will enable these banks to increase their lending margins. Analysts also believe that the slowdown in global economic growth will not really affect African countries that are rich in raw materials. On the contrary, these countries should benefit greatly from rising prices on commodities.
In terms of performance, Nigerian stocks took second place in the first quarter, gaining 9.7% in the local currency (NGN). Investors whose holdings are denominated in US dollars saw a bit less of a gain (8.7%), while those whose holdings are in euros realised an 11.8% gain.
Although Nigeria is one of the world’s biggest exporters of crude oil, there are only a few oil or gas producers listed on the Lagos Stock Exchange (LSE). And they did not figure among the investors’ favourites. Total Energies Marketing Nigeria was up 7.5% in the first quarter, while Oando (ISIN: NGOANDO00002) put on 6.3%.
Investors focussed on stocks that stand to profit from the growing affluence in Nigeria, namely those from the foodstuffs and construction sectors. For example, shares in brewer Guinness Nigeria increased 82% in value. This impressive gain was followed by a 73% gain by shares in personal care products firm PZ Cussons (ISIN: NGPZ00000005) and a 51% by those of palm oil producer Presco (ISIN: NGPRESCO0005).
Regarding construction firms, stock in Julius Berger Nigeria (ISIN: NGJBERGER009) was up 16% and that in glass packaging supplier Beta Glass (ISIN: NGBETAGLAS04) 9.9%. Banking stocks also belonged to the winners, with Ecobank Transnational (ISIN: TG0000000132) putting on 38%; Fidelity Bank (ISIN: NGFIDELITYB5) up 34.5% and Jaiz Bank (ISIN: NGJAIZBANK05) up 25%.
The performance of stocks on other major African bourses was weaker than that of those on the JSE and LSE in the first quarter. In Egypt, for example, stock prices in US dollars fell by 19.2% and by 17.3% in euros. In Kenya, stock prices in US dollars were down 7.8% and in euros 5.2%. Finally, stocks in Casablanca lost 8.3% of their value in US dollars and 5.6% in euros.
The weakness of the Nairobi Securities Exchange was largely due to a poor performance of mobile phone operator Safaricom (ISIN: KE1000001402). Safaricom accounts for two-thirds of the market capitalisation of all stocks traded there.
However, there were also several winners among Kenyan stocks, including the banks Stanbic (ISIN: KE0000000091) and Standard Chartered Bank Kenya (ISIN: KE0000000448). Shares in them were up 20% and 11.7%, respectively. Also, shares in British American Tobacco Kenya (ISIN: KE0000000075) gained 11% in the first quarter.
In Casablanca, the share price of real estate developer Alliances Développement Immobilier (ISIN: MA0000011819) gained 71%, while that of mineral water supplier Eaux Minérales d’Oulmès (ISIN: MA0000010415) was up 42%. Shares in dairy supplier Centrale Danone (ISIN: MA0000012049) were also up 26% in the first quarter.
In any case, the poor performance of stocks traded on the Casablanca, Cairo and Nairobi exchanges should not cloud the fact that international investors are betting on a strong African economy. Apart from commodity stocks, those in financials, consumer goods, construction and real estate are very much in demand. On no other continent does a rising economy have such a direct impact on the construction sector than in Africa.