Market watchers are highly concerned over the rush by investors for African markets as there are no clear cut reasons fuelling this rush. Experts are of the view that this strange attraction for African markets even in the heat of the Covid-19 pandemic though a positive trend for now, may not end up quite well unless the underlying factors are understudied and adequately understood, this is as investors seem undeterred by the uncertainty created by the coronavirus crisis, as they gobble up stock markets, currencies and bonds inspite of the risks posed by the disease. As at the last count, seven of the 12 top-performing developing-nation bond markets this quarter are in Africa. The list includes Angola, which leads the pack with a return of 74% compared with the 9.5% average of peers — even though it’s in discussions to reorganise some of its loans.
Currencies such as Ghana’s cedi and Zambia’s kwacha have recovered from record lows against the dollar, as has SA’s rand, whose 10% gain since the beginning of May is bested only by Mexico’s peso among emerging-market peers. Stock markets have joined the party. SA’s benchmark index has led the pack with a leap of 44% from a low on March 19, while Namibia’s has climbed 41% and Nigeria’s 14%. Standard Bank Group’s measure of African equities has rebounded 36%. That’s despite evidence that the worst of the pandemic is still to come in Africa, where a number of economies have eased restrictions aimed at preventing its spread.
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While African countries are trailing their developed-market peers in infection rates, uncertainty reigns about the trajectory of the disease on a continent that doesn’t have the financial resources available to richer nations to counter the pandemic’s economic and medical effects. Even as at yesterday, Africa had confirmed more than 184,000 cases of the virus, according to the Africa CDC, less than 3% of the 6.6-million cases globally. The continent accounts for about 1.2% of Covid-19 deaths. South Africa is the worst afflicted in Africa, with about 46,000 cases and more than 950 deaths.
“Markets like to see that lockdowns worked in East Asia, Europe and the northeast of the US,” said Charles Robertson, the London-based global chief economist at Renaissance Capital. “They seem prepared also to ignore rising cases in lower-income countries, where ineffective lockdowns have been dropped.” However, some warned that the exuberance may be premature, considering the uncertainty around the nature, spread, and potential prevention of Covid-19, according to Jacques Nel, an economist at NKC African Economics.
Absence of focus concerning how the pandemic will affect individual economies should give investors pause for thought, Nel said. “The pandemic could remain a severe problem from both a social and economic perspective for some time, but at the moment it is difficult to determine this with the limited information., I suspect many investors are waiting for signs of how the crisis will affect different geographies, while taking advantage of much more attractive yields than those provided by less risky assets.”
Analysts have warned that many African economies are positioned for an extended slump due mainly to lack of economic stimulus as the six biggest African economies will see GDP contract by an average of 4.5% this year. That suggests markets could be in for pain once this rally has run its course.
“We have a stable to positive outlook on most African currencies right now, but we are wary of over-exuberance in the markets,” said Michael Nderitu, the Nairobi-based chief risk officer at AZA. “In some markets investors seem to be almost blind to the risks and are buying as if there’s no pandemic.”
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry