The year 2016 has been rough up to now for equity investors in Africa. Most markets suffer losses. But the situation is far from being hopeless.
Leading market places in Africa show heavy losses this year. Of course, the international environment is not very favourable. Commodity prices are down, volatility on international financial markets is high and the world is waiting for interest rate hikes in the US. The downturn of African equity markets hit especially investors accounting in euro terms.
For euro investors the year 2016 has been up to now especially hard in Nigeria. The NGSE ASI index at the Lagos Stock Exchange lost this year 40% in euro terms, according to data published by the data provider African Markets. But in Ghana too, the leading index of the Accra stock exchange went down more than 15%. Investors accounting in euro also had to face losses in Kenya where the NSE ASI index fell by nearly 10% since the beginning of the year. In this situation the other big stock market of the African continent, Egypt, has shown an unexpected resilience. The leading index EGX 30 lost just 0.3% year-to-date.
Among the leading financial markets of the African continent, Casablanca is the big exception. The MASI index of the Moroccan stock market gained 10.4% this year followed by the biggest marketplace of the continent, the Johannesburg stock exchange. Indeed, the JSE ASI index of the South African equity market went up 9.9% this year to date.
The weakness of African financial markets affected also fund investors in the euro zone. The BB African Opportunities of the Swiss asset manager Bellevue Asset Management shows a loss of 2% this year according to Morningstar data. And the equity fund African Lions managed by the fund boutique Silk Invest went down more than 11% since the beginning of 2016. Same situation for the African Fund managed by the asset management group Templeton that shows a loss of nearly 10% this year.
Despite this unfavourable picture, there is also good news for financial investors in Africa. First of all: The losses at the Lagos stock exchange are mainly due to the currency situation. In local currency the NGSE index lost just 3.1% this year. Even this is still a negative performance, the minus is fare smaller than the 40% euro investors have to digest. There are some signs suggesting that the severe recession the Nigerian economy has suffered due to the drop in oil price can be stopped.
And in South Africa, investors are much more worried about the political situation – investors are fearing that Finance Minister Pravin Gordhan could be replaced – than about the fundamental situation of the companies listed at Johannesburg stock exchange.
Therefore, some Africa fund managers show a positive performance this year. For instance, JP Morgan’s Africa Equity Fund went slightly up this year by 0.2%. Sebastian Kahlfeld, manager of Deutsche Bank’s Deutsche Invest Africa Fund, can point at a positive return of 4.8% this year. He is just outperformed by the Africa Focus Fund managed by the Swiss private bank Julius Baer showing a positive return of 5,8% in euro terms.
Sebastian Kahlfeld, the manager of Deutsche Bank’s Africa fund, made a huge bet on South Africa in his portfolio as he invested 30.9% of the fund’s assets on the Johannesburg stock exchange. A quarter of his assets under management – 25.1% – is invested at the other end of the continent: on the Egyptian stock market. His biggest holdings is the South African Internet, media and entertainment group Naspers that has formulated an ambitious strategy of international diversification. The outcome is that Naspers has substantially reduced its dependence from South Africa’s economic situation as the group has expanded to countries such as Brazil, China, Greece, India, Russia or Thailand. Since the beginning of February the Naspers stock price went up by more than 60% in euro terms.
Therefore, despite the blustery situation of African financial markets, the continent still continues to offer international investors some interesting investments.