22, 2019 6:30AM /Proshare Research
Africa stock markets in 2018 generally slid downwards as global economic headwinds adversely affected commodity exports and fiscal revenues. West and South African economies broadly dipped as East African economies gave mixed outlooks. North Africa had as much of a tough time with its markets as their West African counterparts. The current market outlooks for 2019 appear very similar to the previous year, 2018, but a lot will depend on the resolution of trade conflicts between China and the United States of America, and between Italy and its European neighbours in the EU.
Nigeria All Shares Index (ASI) (YTD):-17.81%
Nigeria’s ASI saw market yield slump from +42% in 2017 to-18.71% in 2018. The fall in market performance can be attributed to:
· Economic headwinds caused by falling international price of oil in the course of the year. Oil price fell from$80 per barrel at the beginning of the year to $60 by year end
· Rising debt servicing costs. Debt service charges where over 60% of fiscal revenues in 2018
· Slow domestic private consumption and investment growth. GDP grew by only 1.81% by Q3 2018
· Inflation fears kept Central Bank of Nigeria (CBN) policy rate (MPR) at 14%, crowding out private sector borrowing
· Treasury bill rates hovered between 13% and 15% for 30-day instruments reinforcing CBN’s policy rate and public sector borrowing bias
· Not much will change in 2019 as the fiscal deficit is expected to be large as oil prices stay below the 2019 budget benchmark of $60 per barrel
South Africa FTSE/JSI (YTD): -11.4%
South Africa’s stock market had a very tough year in 2018 as the economy struggled for growth. On top of difficulties with export growth, the South African economy has had to cope with high levels of unemployment, youth restiveness and intense demands for greater access to land by blacks. The market was equally pulled down by other factors:
· A shrinking global economy resulted in lower global demand for goods and services; exportable goods such as Diamonds saw a slump in prices and volumes, as the economy was estimated to have grown by 1.9% in 2018
· High unemployment rate estimated at 27.5% by analysts at EconomicFocus meant lower private consumer spending in 2018 and slower sales of fast moving consumer goods (FMCG’s). Rising manufacturer inventory placed higher cost on production and thinned down corporate profit margins. This showed up as falling manufacturer equity prices in the course of 2018.
· On the bright side the South African economy has been free of inflation pressure; inflation rate was 4.7% in 2018, meaning that the monetary authorities did not have to pull rates up in the year, which would have worsened manufacturers finances.
· Analysts believe that 2019 would likely see marginally improved growth of the economy as international trade conflicts work themselves out and the global economy begins to grow slightly faster. GDP growth is estimated at a probable 2.1% for the year. This would likely push the Johannesburg Stock Index (JSI) up but not by very much.
Egypt (EGX 30) Index (YTD): -13.2%
Egypt was one of a number of North African economies that faced major challenges with growth in 2018. This had a negative impact on the country’s equity market. The major issues that affected the market in 2018 were:
· Higher inflation rate compelled the country’s monetary authority to jerk up interest rates to cool off growing domestic demand pressure. Understandably, this lead to unemployment jumping a few ticks and industrial production slowing down in 2018.
· The second quarter of the year got to a rocky start as activity in the country’s non-oil private sector contracted for a second straight month. On the positive side, however, the country was able to finalize a $2bn International Monetary Fund (IMF) Support Facility.
· The EGX may not offer investors much relief in 2019 as the economy is expected to grow only marginally faster than last year as Egypt like other African countries faces a commodity curse which condemns it to deal with lower commodity prices for the year.
Zimbabwe (ZSE) (YTD):+47.5%
Zimbabwe’s stock market was a poster boy for strong returns in 2018. The market yield of +47.5% was the best on the continent. The market’s key drivers were:
· The change in the country’s trading currency from the Zimbabwean dollar to the United States Dollar last year temporarily built confidence in the economy as new President Emmerson Mnangagwa looked like taking a different political and economic route from that of his predecessor, President Robert Mugabe. This got the attention of foreign and domestic investors willing to give Mnangagwa a chance to drive a more transparent, market-oriented economy with minimal state intrusion.
· Zimbabwe’s economy has been in dire straits since hyperinflation wiped out savings between 2007 and 2008. Food shortages and scarcity of basic essentials such as drugs still characterize the economy as the country tries to cope with a three tier payment system of American Dollars, bond notes and credit card payments.
Inflation in Zimbabwe is still high although much more savoury than before the use of the American Dollar as transaction anchor for the financial system.
· The ZSE outlook for 2019 is not much different than for 2018, the country’s stock market may end the year positive but with a much less flattering return than 2018. Investors are becoming increasingly jittery as inflation (and the need to raise interest rates) and low consumer spending capacity slowdown economic growth.
Ghana (GSE) Index (YTD):-0.3%
Ghana’s economy was the strongest in the West African region in 2018. The economy was characterized by relatively high inflation (10.0%), fast-paced GDP growth (6.2%) and low government fiscal deficit to GDP ratio. This, notwithstanding, 2019 will see the Ghana economy engage a different gear from 2018:
· Inflation rate will remain high as consumer spending will continue to feed off momentum gained in 2018 at least till the end of H1 2019.
· To stem inflation pressures, policy rate of the Ghana Central Bank will stay at about the 17% rate of 2018
· Given the fall in international commodity prices the economy could slow to a growth of 5.6%
· International investors remain impressed with the stability of the Ghanaian economy and the country’s investor-friendly policies, this may see the GSE turn positive by the close of the year
Malawi (MAS) Index (YTD):+34.2%
Malawi Stock Exchange had one of the most successful years of all African Exchanges in 2018. The country’s MASI rose by+34.2% despite the narrow resource base of the economy. Malawi is predominantly agricultural with over 80% of the country’s population living in rural farming communities. The country’s most significant exports are tea and sugar. However, the dominant influences over the stock market in 2018 included:
· President Paul Mutharika who seems to have stabilized the economy since coming into power in 2014 faces re-election in May 2019, and is likely to win.
· Inflation rate in Malawi is 7.7% and declining
· The national currency the Kwacha is fairly stable although subject to pressure as commodity prices for tea and sugar fall
· Interest rates have gone down since 2018 although the country’s policy rate has stayed at 16%
· Foreign reserves now cover five months of import as against one month of import 4 years ago
· Government officials expect the economy to grow at 6% in 2019
· These bright spots, however, hide the very troubling fragility of the economy as a lot in 2019 will depend on export prices holding up and export volumes remaining stable at 2018 levels
· Power supply is also a major problem for the economy with power falling from 350MW installed capacity to 200MW available for distribution.
Morocco FTSE CSE (YTD): -8.3%
Morocco’s agricultural sector has rebounded from the crisis it suffered between 2007 and 2008. Growth rate for agriculture and cereal production is estimated at 3% for 2018. The government has tried to reduce its fiscal deficit to 3.3% of GDP and reduce it further to 3% by 2019. The stock market reflects the still relatively weak nature of the Moroccan economy. Key characteristics which have affected the market include:
· High unemployment rate which rose from 9.9% in 2016 to 10.2% in 2019
· Weak capacity of the economy to generate inclusive growth as unemployment among the young in 2018 was estimated at 26.5%; 17.9% among the educated, and 14.7% among women.
· Morocco’s dependence on commodity exports like many African economies makes it heavily dependent on international global market conditions and a growing global economy
· The CSE may not do too well in 2019 if international trade activities do not pick up in 2019
The performance of African Stock markets thus far in 2018 has not been very impressive compared to the year 2017. Out of thirty-seven (37) markets reviewed, thirteen (13) trade in the green while the remaining twenty-four (24) trade in red.
A quick review of African stock markets performance reflects that the Zimbabwe Industrials and Mining Indices top list of best performing African markets with+58.61% and +35.67% YTD gains respectively. They are closely followed by Malawi All Share Index and The Tunisian Index with +28.12% and +15.96% gains respectively while the Mauritius SEMDEX Index records the least gain of +0.79%.
However, Ivorian BRVM-C records the highest loss of -30.57% and closely followed by the BRVM-10 with -26.47% losses in that order.
The Nigerian All-Share Index records -19.68% YTD loss as at 11th December 2018 and it is the fifth worst performing among the stock markets as at the period under review.
Zimbabwe Industrials Index
Zimbabwe Mining Index
Malawi All Share Index
Tunisia BVMT Index
FTSE NSE Kenya Govt. Bond
GSE Composite Index
Rwanda Stock Exchange
FTSE ASEA PANAFRICAN Index
FTSE NSE Kenya 15 Index
Dar es salaam Stock Exchange All Share Index
JSE All Share Index
FTSE NSE Kenya 25 Index
JSE Top 40 Tradable Index
ALL SHARE INDEX
20 SHARE INDEX
Source: Proshare Markets
NB: Data is as at December 11, 2018
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