Morocco was the favourite in 2016 – and could defend its pole position in 2017. How to play African equities this year.
With a performance of more than 30% in euro terms Casablanca stock exchange was the second best performing equity markets in Africa in the past year. Only Namibia was stronger with a plus of 44.3%.
Even Johannesburg Stock Exchange in spite of all the political and economic difficulties South Africa is facing did very well in 2016 with a performance of 16.3% in euro terms, even if the market was for local investors with a minus of 0.1% quite disappointing.
This is still better than what happened to equity investors in Ghana, Nigeria, Egypt or Zambia where the markets have been in a sort of a freefall last year. Investors lost at Lagos stock exchange 38.8% in euro terms and 40.6% in dollar terms. In Ghana, share prices felt 22.1% in euro terms, in Egypt 23.5% and in Zambia 16.6%. Compared to these disappointments, Nairobi stock exchange did relatively well losing just 6.1% in euro terms.
Five of the six big equity markets were disappointing in 2016: Lagos, Cairo, Johannesburg, Nairobi and Accra. Only Casablanca did better. In Accra and Lagos, share prices went down due to a slow-down of the economy caused by the fall in global prices of gold, cocoa or oil. In Nigeria, the devaluation of the local currency, the naira, did not seem to be strong enough to convince foreign investors to come back. For that, the government should present a convincing plan for a substantial reduction of the budget deficit.
Even if the perspectives for 2017 are a little bit better due to a recovery of oil prices, the poor results of 2016 show how many African economies still depend on natural resources. Therefore, there are not so many alternatives.
Even if Namibia is currently in the lead of Africa’s equity markets, investors should be aware of the fact that Windhoek stock exchange is still a very narrow market with just a little bit more than 30 listed companies. Many of them are local listings of foreign companies, and most of these foreign companies are South African such as Nedbank, Standard Bank, Shoprite, Old Mutual or Investec. And access to the Windhoek stock market is not so easy.
Casablanca on the other hand is a well-established equity market ranking currently not only between the most performing markets in Africa, but also being one of the most sophisticated and diversified markets on the continent.
Investors should also consider Johannesburg stock exchange as many South African companies have developed in the recent years convincing pan-African business development strategies. Therefore, many companies listed in Johannesburg will be a play for a recovery of Africa’s overall economy. This is also true for Casablanca: Many Moroccan companies use their country as platform for expanding to, what Moroccans like to call, “Africa”. Banks such as Attijariwafa or BCME have extended their activities beyond the neighbouring countries to markets such as Rwanda.
Investors who position themselves on well-established markets such as Casablanca and Johannesburg will benefit from a relatively high liquidity on these markets and from a recovery of Africa’s economy in 2017.