Our finding that African equity markets are doing better than those in Europe has come as a surprise to many of our readers. They have asked us why. In this week’s column, we dive deeper into the reasons for the outperformance.
Capital News Africa: From the Trading Floor – Week 38-2022
From the perspective of investors, the old-world order that existed for 60 to 70 years is gone. Developed regions like North America and Europe no longer provide investors with more security than emerging ones. Moreover, bonds are no longer safer than shares. For the more interest rates rise amid the surge in inflation, the greater the risk of losses on bonds.
Over the past year, investors have faced significant upheaval that may permanently change the way they view the world. Following a dispute among members of the oil cartel OPEC, the price of petroleum began to rise. At the same time, disruptions in supply chains originally caused by the Corona pandemic added to the inflationary pressure around the globe. And finally, investors have had to contend with a geopolitical crisis caused by Russia’s invasion of Ukraine in late February. Following our last editorial, many of our readers have asked us to examine these developments further and explain why, despite them, African markets are holding up so well.
Since the war in the Ukraine began, we have observed in western media several negative predictions. These include: The continent will be hit by a serious economic and fiscal crisis; there is a risk of famine due to a shortage of foodstuffs in some countries; or there will be more violent conflict because of the aforementioned factors. None of these predictions have come true.
Of course, the state of some African economies remains precarious. But other economies continue to do better than expected. An example: While lower wheat imports from the Ukraine have caused problems in Egypt’s food supply, African countries that are not dependent on wheat have had no such problems. Indeed, there have been no disruptions in the supply of corn, millet, yams or even rice.
It is also true that the debt situation in countries like Ghana is critical. But this was the case even before Russia’s invasion. Moreover, the military situation in the Sahel region has become less tense since Russian mercenaries like those of the Wagner group have left.
But why have western observers, including economists at international institutions, banks and think-tanks, have been so wrong in their predictions for Africa? Certainly, they could give a more profound answer than we can. What is clear is that Africa still suffers from the clichés that the West harbours towards it. Over the last decades, the media reports of famine, violent conflict, poverty, refugee camps, droughts and locust plagues have found their way deep into the western psyche.
But the African reality is far more complex. Yes, the problems mentioned above still exist and one can still describe the continent’s economy as fragile. What many in the west don’t notice, however, is that Africa’s private sector has developed remarkably and, hence, is the main driver of economic growth on the continent.
The private sector’s strength is reflected by African equity markets. In Casablanca, for example, the blue-chip index FTSE CSI Morocco 15 is up 4.8% from its year-low on 5 July. In Cairo, the continent’s second biggest share market after Johannesburg, the EGX index is up 14% from its year-low in early July. his is also true of the blue-chip index Kenya NSE 20 in Nairobi, which is 12% up from its year-low at the end of June. One caveat: The NSE 20 is still below its level from the beginning of the year due to the uncertainty among investors about Kenya’s presidential election last August.
Elsewhere in Africa, the blue-chip index for Nigeria’s bourse, the NSE 30, is 15% below its highest level in 2022. The reason: The recent decline in the oil price, on which many stocks traded on the Nigerian bourse depend. Meanwhile in Johannesburg, the gold price, which has fallen 9% so far this year, has weighed on stocks traded there. As a result, the FTSE South Africa is only 2.4% above its lowest level for the year on 14 July. On 16 August, the index was 11% above the year low, but has fallen somewhat since then.
Still, the salient point is that the catastrophic predictions for Africa that were made earlier this year have not come to pass. On the contrary, the data shows that African equity markets are outperforming European ones. Simply consider that the blue-chip Euro Stoxx 50 is down 20% since the beginning of the year.