Frontier markets more resilient than emerging markets

Amid this bearish environment, frontier markets are faring better than emerging markets. Consider that the MSCI Frontier Markets (MSCI FM) index has lost 13.6% in the past twelve months, while the MSCI Emerging Markets (MSCI EM) index is down 23.7%.

An emerging market shares some, but not all characteristics of a developed market. Compared with emerging markets, frontier markets are smaller, riskier and less liquid. Most African countries are seen as frontier markets, but a few of them have established stock markets, namely Kenya, Ivory Coast and Ghana. Nonetheless, major index providers like FTSE, MSCI, S&P and Russell only regard South Africa as an emerging market, while all other African countries are deemed frontier markets.

MSCI also provides a Frontier Markets Africa index (MSCI FM Africa) which, in the past year, has outperformed the MSCI FM index by losing just 2.3%.  In a ten-year comparison, the MSCI FM Africa is up by 16.9% against 13.7% for the MSCI FM.

We attribute the outperformance to a better mix of sectors in the MSCI FM Africa index. The MSCI EM index is, for example, dominated by Chinese tech companies.

For its part, the MSCI FM Africa index includes telecom operators such as Safaricom (ISIN: KE1000001402) and Maroc Telecom (ISIN: MA0000011488). It also has banks such as Attijariwafa Bank (ISIN: MA0000012445) or MCB Group (ISIN: MU0424N00005). Among the ten biggest stocks in the index, you will also find cement maker Lafarge Holcim Maroc (ISIN: MA0000012320) and Moroccan sugar company Cosumar (ISIN: MA0000012247). These constituents reflect that the MSCI FM Africa is more diversified than either the MSCI FM index or the MSCI EM index.

International investors return to Africa

According to the economists at Afreximbank, international investors will return to Africa this year. In their latest report on African growth prospects, the economists said they expect non-resident capital flows to Africa in 2022 to exceed the pre-pandemic level. The foreign capital should total around USD 40 billion (EUR 37 million), up from USD 38 billion in 2019.

The economists noted that the renewed interest in Africa was due to last year’s gains for African stocks and the shrinking of corporate bond spreads to almost 20-year lows. “The difference in the spread between African frontier markets and comparable emerging economies has narrowed,” the economists said. In recent months, however, the spreads have increasingly diverged.

Commenting further on the African bond market, the economists wrote: “As risk premiums fell from their pandemic record high posted in Q1 2020, several African economies returned to international capital markets, raising non-local currency debt. Collectively, sovereign bond issuances by African frontier markets reached USD 19.6 billion in 2021, up from USD 15.7 billion in 2020.” In addition to the larger size and volume, most African sovereign bonds were oversubscribed. The Afreximbank economists see this as a sign of increasing investor confidence in the region’s growth prospects.

In 2020, outstanding debt from sub-Saharan Africa totalled USD 702.4 billion, or almost double the USD 381 billion recorded in 2012. A large part of this debt has been issued by multilateral lenders like the World Bank, but also by African governments. African debt has increased to USD 258 billion in 2020 from USD 119 billion in 2012.

Afreximbank is an African multilateral trade finance institution created in 1993 under the auspices of the African Development Bank (AfDB). The bank is headquartered in Cairo, Egypt, and has a total of five offices in Africa.

A hard week for Kibo Energy shareholders

Last week was hard for shareholders in Kibo Energy (ISIN: IE00B97C0C31). Kibo is an Ireland-based company operating gold, coal and nickel mines in Tanzania, Mozambique, Botswana and the UK. On Tuesday, Kibo’s share lost nearly 3% and then on Wednesday 9% to trade at GBP 0.0015 (EUR 0.0018). In the past six months, the share has shed 30% of its value, reducing Kibo’s market cap to GBP 4.9 million (EUR 5.7 million).

One reason for the share’s steep decline was a statement on Monday in which Kibo said it would seek the admission of 56,118,047 new shares on the AIM in London and the JSE AltX in Johannesburg. The new shares are needed to pay off a loan extended by Sanderson Capital Partners, which is headquartered in Bolton, UK. Sanderson is already Kibo’s largest shareholder with a 12.7% stake. The settlement shares were issued at GBP 0.0016 (EUR 0.0019) each and should be admitted to trading on Tuesday, 7 June.

Kibo Energy says it wants to stop being a mining company and instead become a “multi-asset green energy development company” in the areas of clean energy, reserve power and power storage. This move has not helped its share price much. Meanwhile, Kibo’s operating loss as measured by EBITDA totalled GBP -5.6 million (EUR -6.6 million) in 2020 compared with GBP -0.02 million in 2015. Its results for 2021 have not yet been published.

Managem benefits from the trend towards e-mobility

Moroccan mining company Managem (ISIN: MA0000011058) continues to please its investors, which include the country’s royal family. The family’s investment firm Al Mada owns 80.3% of Managem, which specialises in extracting copper, zinc, lead, gold, silver, fluorine, cobalt and cobalt derivatives.

Last week, Managem signed an agreement with Renault under which it will supply the French automaker 5000 tons of cobalt sulphate per year. Renault will use the cobalt to make batteries for electric vehicles.

Even before the announcement, Managem was one of Africa’s hottest stocks. It is up 41.7% to MAD 2225.00 (EUR 210.64) since January and 145% for the past three years. Indeed, Managem’s share has outperformed most other major mining companies this year, including BHP (+9.9%), Rio Tinto (+17.7%), Anglo American (+27.7%) and Glencore (+39.9%).

Analysts at BMCE Capital Global Research continue to be bullish on Managem. According to them, the firm’s earning per share (EPS) for 2021 should be at MAD 86.20 (EUR 8.16). This year, the analysts are forecasting Managem’s EPS at MAD 97.10 (EUR 9.19), reflecting an increase of 12.6%. We are, however, not the first to discover this company and its stellar performance. Following its discovery by other investors, Managem no longer looks like a bargain. Its price-to-book value stands at 3.4 per share based on the forecasted 2022 results.