NCM2020 (5) - African Stock Markets Record Improved Performance in 2019

Proshare

Saturday, January 25, 2020 / 06:00 AM / By Proshare Research/ Header Image Credit: EcoGraphics

 

The African stock market recorded a general improvement from last year despite various economic headwinds.

 

Zimbabwe (Zimbabwe Industrial Index) +56.12%

Zimbabwe's economic woes still persist, as it still battles with high unemployment, inflation, poverty and low GDP growth rate. Despite these economic woes the Zimbabwe stock market has witnessed positive improvement from last year.

  • Economic conditions worsened sharply in the first half of 2019.
  • Inflation has been on the rise since October 2018, induced by monetization of sizable fiscal deficits of the past, price distortions, and local currency depreciation. Annual inflation reached 480.7% in November, 2019.
  • To stabilize the exchange rate, the Government mandated the use of the Zimbabwe dollar as a sole legal tender on June 24, ending the multicurrency regime in place for over a decade. However, with critically low levels of official reserves, constrained access to external financing and limited tools by Central Bank to sterilize the economy, the local currency has continued to depreciate.
  • Extreme poverty is estimated to have risen from 29% in 2018 to 34% in 2019, or from 4.7 to 5.7mn people. The increase in poverty is driven by economic contraction, sharp rise in prices of food, cyclone idai and basic commodities.
  • With dwindling reserves, there is a high risk of a vicious circle of wage-price spiral and exchange rate overshooting, plunging the country into hyperinflation and economic crisis.

 

Kenya (All Share Index) +17.79%

Kenya's economy in 2019 was relatively stable. The relative stable growth translated into positive growth in its stock market.

  • Kenya continues to experience steady economic growth, with real GDP expanding on average by about +5.6% over the last five years (2014-2018). In 2019, however, economic activity has softened primarily due to lower agricultural output and weak private sector investment.
  • Headline inflation was +5.56% in November, 2019 which is attributed to lower energy prices, which was able to offset temporary pressure from rising food prices in H1. This is reflecting an economy where underlying demand pressures are still benign. The low inflationary pressure has also been supported by a stable local currency.
  • Kenya's manufacturing exports to Africa (which accounted for 35.3% of its merchandise export in 2018) have contracted for the third consecutive year from Ksh.242.2bn in 2015) to Ksh.216.2bn in 2018 (an average of -3.6% decline per year) in part due to intensified competition in these markets, indicating a need to boost competitiveness for Kenyan manufacturing. The current account deficit continues to be adequately financed by official borrowing and private investment inflows (portfolio and direct investment).

 

South Africa (JSE All Share Index) +11.19%

South-Africa stock market witnessed a positive growth by +11.19%, an improvement from negative growth rate last year.

  • The South-African economy contracted to -0.6% in Q3, 2019. Even as the economy contracted in the third quarter, the Johannesburg Stock Exchange's benchmark index is charting gains. 
  • South-Africa's economic growth hasn't exceeded 2% since 2013. The South-African economy in 2019 recorded failing state companies and ballooning debt which has been sapping business and consumer confidence.
  • Local companies have been battered by a mix of local and international problems in 2019, including South African staples like creeping economic growth, high levels of unemployment and continued pressure from labour unions.
  • Companies have also had to contend with brewing trade wars between the US and China, political confusion around Brexit, and local electioneering.
  • The continued lack of sufficient growth has weighed on the government's revenue collection and made it even more difficult to lower an employment rate that's close to 30% and that's seen as one of the biggest obstacles to reducing poverty in one of the world's most unequal nations.
  • Credit ratings companies such as moody's investors services and fitch ratings  have been flagging deteriorating debt metrics due to low GDP growth and high budget deficits as a key risk.
  • Despite these pressures, many of South Africa's biggest companies have emerged victorious - led by the mining sector that has seen its biggest resurgence in more than a decade.


Egypt (EGX 30) +6.51%

The Egyptian economy has witnessed significant growth in its economy. The economic reforms that took place in the economy has attracted more liquidity into the economy. The positive economic growth has translated into positive growth in its stock market.

  • Egypt's economy is growing rapidly. Gross domestic product (GDP) grew to +5.6% in the third quarter of 2019 against +5.4% in the same period of 2017-2018.
  • The Eqyptian EGX recorded a gain from last year. The positive gain in the market has been supported by its low level of inflation.
  • Low inflation rate is a gain to the (Central Bank of Egypt) and expectations of another cut of interest rates on deposit and lending, which supports the provision of liquidity to companies operating in the Egyptian market supported by the end of the summer rents and the international markets are starting to adopt a wave of improvement against the backdrop of the slow pace of trade war between the US and China.
  • Low inflation rate, IMF funding and support has helped improve the attractiveness of the country in the eyes of investors, injecting billions of dollars into the domestic debt market as economic growth picked up in the country.

 

Ghana (GSE Composite Index) -12.53%

Despite the growth witnessed in the Ghanaian economy, the stock market moved in opposite direction has it experienced a negative growth rate.

  • Ghana's economy grew by +5.6% in Q3, 2019 compared with +7.4% in the same period of last year
  • Private sector credit grew stronger, supported largely by the well-capitalized banking sector.
  • Inflation continued to be in single digits in the first three quarters of 2019; gradually rising from +9% in January to +9.5% in April 2019 but reduced to +8.2% in November 2019 mainly driven by low food inflation.
  • Fiscal performance for the first half of 2019 showed an overall budget deficit (on cash basis) of 3.3% of GDP higher than the target of 2.9% of GDP. This is because the revenue shortfalls of 1.6% of GDP was higher than expenditure cuts of 1% of GDP.
  • Ghana's energy sector is in dire financial conditions and without remedy, this poses serious fiscal risks in the coming years. The sector is facing high costs from excess power capacity and natural gas supply, which are exacerbating the existing revenue gap.

 

Nigeria (All Share Index) -15.95%

  • The Nigerian economy is still vulnerable to oil-price volatility as the economy is yet to diversify away from oil.
  • Nigeria's inflation rate has consistently been on the rise since the border closure with its most recent inflation rate at +11.85%.
  • Growth picked up modestly in the third quarter on the back of strengthening momentum in the non-oil segment of the economy. Notably, the industrial sector posted the strongest expansion in a year and a half, underpinned by more upbeat manufacturing and construction activity. Meanwhile, output in the all-important oil sector remained robust in Q3, despite weakening slightly, lending further support to the expansion.
  • The economy is projected to gain some steam next year largely on the back of stronger household spending, supported by the full implementation of the minimum wage increase. The outlook remains fragile, however, dampened by high unemployment, insecurity challenges, power shortages, low oil prices and a more subdued global economic environment.

 

Botswana (DCI) -4.44%

Botswana's low level of economic growth has negatively affected the growth of its stock market. The stock market dipped negatively in 2019.

  • The Botswana economy recorded a growth rate of +3.2% in Q1 2019 but growth rate has decelerated to +1.6% in Q2 2019 and further decelerated to +0.2% in Q3 2019. After a sizable downturn in mining caused growth to fall to a two-year low in the second quarter.
  • Notably, merchandise exports contracted at an even sharper rate on a decline in overseas sales of diamonds, which account for nearly 90% of total exports. Lower diamond shipments reflect the fall in output prompted by the closure of the Orapa mine in April and the challenging external backdrop.
  • In addition, firms were less optimistic about business conditions in Q3, suggesting deteriorating private sector activity as the worst drought in a decade wiped out crops and livestock through the quarter. Meanwhile, in politics, the opposition challenged October's elections results in court on 26 November, amid claims of electoral fraud. 

 

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There was an improvement in the performance of African Stock markets when compared with the performance of 2018.  Out of (36) African stock markets reviewed, (22) were green signifying an improvement while (12) were red signifying a dip.

Zimbabwe's Industrial and Mining Index which topped the list last year remained top with gains of 56.12% and 35.12% respectively while Kenya's FTNSE NSE Kenya 25 index 28.78%. Mauritius SEM7 recorded the least gain of 0.38%.

 

The three top losers where Egypt's EGX 70, Egypt EGX 100 and Lusaka All-Share Index with losses of -23.61%, -19.41% and -18.75% respectively.

 

Do feel free to share your opinions/observations and feedback with us vide content@proshareng.com and/or research@proshareng.com

 

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Proshare Nigeria Pvt. Ltd.


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