Dear subscriber,
We are happy to share with you the latest issue of Capital News Africa, your weekly newsletter about African financial markets. It is published every Monday. Every Thursday, we invite you to read an in-depth analysis of a selected topic in our weekly editorial “From The Trading Floor.”
We aim to provide you with valuable insights about African stocks and about the trends that move those stocks. We trust that these insights will help you make up your own mind regarding an investment in Africa. We feel strongly that investors should gather the proper information and then make their own judgment instead of just relying on the opinion of others.
Sincerely,
Christian Hiller von Gaertringen
Editor-in-Chief, Capital News Africa
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Index providers MSCI and Russell have removed Russia from their emerging markets indexes. The move is very significant for ETFs that follow such indexes. Providers of emerging market ETFs include: iShares, Blackrock, Lyxor, Amundi, SPDR, HSBC, X-Trackers, UBS, Invesco and Deka. As these providers must replace Russian equities with those from other countries, it is likely that stocks from Egypt and South Africa will benefit.
And this is the reason why: The MSCI Emerging Markets index covers three regions. They are: 1) The Americas with Brazil, Chile, Colombia, Mexico and Peru; 2) Asia with China (which is quite anachronistic), India, South Korea (which is even more anachronistic), Malaysia, the Philippines, Taiwan and Thailand; and 3) Europe, Middle East & Africa with the Czech Republic, Hungary, Greece, Poland, Turkey and Russia as part of Europe. Kuwait, Qatar, Saudi Arabia and the UAE are in the Middle East, while Egypt is paired with South Africa in Africa.
Russia was represented in the MSCI Emerging Markets with a weighting of 3.2%. That does not sound like much. But let us take iShares’ MSCI EM ETF (ISIN: IE00B4L5YC18) as an example. Given that the ETF manages EUR 1.1 billion in assets, iShares must now redeploy EUR 35.2 million to other emerging markets, including Egypt and South Africa. The same goes for the corresponding X-Trackers ETF (ISIN: IE00BTJRMP35) from DWS. With total assets of EUR 5.5 billion, that ETF will have to redeploy EUR 176 million.
We do not want to sound like we are gloating. We merely want to describe the consequences of geopolitical events objectively. Therefore, let us state without prejudice: Due to the ban on Russia, large sums of money in emerging market ETFs will have to be redeployed. South African and Egyptian stocks stand to benefit from this.
We have been saying for a long time that more African companies should go public. This is because a listing can make an entrepreneur free. This conviction is the foundation of our newsletter Capital Markets Africa, and we have long regretted that African stock exchanges are not promoting their financial centres more.
Bourse de Casablanca is a notable exception. The Moroccan stock exchange has launched an initiative to bring more companies public. The bourse has created a website: https://www.ipo.casablanca-bourse.com/. Casablanca’s bourse has also developed a manual aimed at entrepreneurs considering a listing, and the bourse’s representatives are organising road shows throughout the country.
According to Tarik Senhajji, director general of Casablanca Stock Exchange (CSE), the CSE is awash with liquidity. The recent public offerings of Maroc Telecom, also known as Itissalat (ISIN: MA0000011488), and Travaux Généraux de Construction de Casablanca, or TGCC (ISIN: MA0000012528), reflect that the CSE can mobilise billions of Moroccan dirhams from investors. The current conversion rate is: MAD 100 = EUR 9.25.
Another argument Senhajji makes for a listing on the CSE is its relatively high price-to-earnings (P/E) ratio. This metric enables investors to gauge whether a stock is relatively cheap or expensive. Said Senhajji: “With a P/E of 23, the Moroccan stock market is generous to business leaders. In other words, for 100 dirhams in earnings, the market is willing to pay 2300 dirhams. This is the best possible valuation in the world for a Moroccan company.”
Thungela Resources (ISIN: ZAE000296554) is considered by ESG activists to be one of the “bad boy” stocks. Then again, Thungela has been a huge success story for South Africa’s capital market. Some history: Thungela, which operates black coal mines in South Africa, was spun-off from mining giant Anglo American (ISIN: GB00B1XZS820). Thungela is listed on Johannesburg’s stock exchange and Anglo American on the London Stock Exchange (LSE).
Since its IPO last 6 July, Thungela’s share price has skyrocketed. In the second half of 2021, the share gained a whopping 290%. Since the start of this year, it is up by more than 100% to ZAR 169.52 (EUR 10.24). In the last five trading days, Thungela’s share price stagnated however.
Despite this temporary halt, we think investors should keep an eye on Thungela. Eastern Europe will remain a geopolitical trouble spot in the foreseeable future. And that will likely boost fossil fuels, including coal provided by Thungela, even if this has negative consequences for the climate.
“Agflation” – the threat of global inflation fuelled by skyrocketing prices for agricultural goods – is scaring international investors. Russia’s war against Ukraine is a war between two of the top five agricultural exporters in the world, and the conflict has upset global commodity markets. The S&P GSCI Wheat index jumped more than 30% in the past five trading days.
The threat of agflation could benefit African stocks like UAC of Nigeria (ISIN: NGUACN000006). UAC produces animal feed, which accounts for nearly two thirds of its net sales of EUR 194 million. It also provides cereals, edible oil, soft drinks, fruit juices, bottled water, snacks, ice cream and real estate. Indeed, UAC’s share price rose 8.1% last week to NGN 10.05 (EUR 0.022) on the Lagos stock exchange. Its market cap currently stands at EUR 63.3 million.
But UAC’s share price gain was less than we expected. We put this down to the fact that UAC is a typical emerging market conglomerate. Hence, investors are reluctant to invest in it, as they are not sure which market trend exactly, they will benefit from