African Equities: Promising Times
Having lagged much of the global rally that kicked off in March 2009, Sub-Saharan African equity markets are at long last beginning to perk up. Interestingly, the major markets are also moving with a much greater degree of correlation than in previous years, suggesting that they are creeping onto the collective radar of international investors.
On one hand, this interest is underpinned by a solid macro story: BMI forecasts real GDP growth of 5.3% in Sub-Saharan Africa versus just 0.9% in the Eurozone and 1.8% across developed states. An equally important consideration, however, is valuation. The benchmark Nigeria Stock Exchange Index, for example, is trading at trailing P/E of 13.7, which compares favourably with 18.7 for the South African JALSH. A number of local Nigerian blue chips, meanwhile, are trading at price book ratios of just 1.0-1.5 – an attractive proposition, given their potential.
The picture emerging from the fixed income market, though not as uniformly positive, still contains some pockets of opportunity. The top pick here is undoubtedly longer dated bonds from Ghana, which offer nominal yields in excess of 17%, as well as the prospect of an appreciating currency. Kenya and Uganda could also prove attractive plays, especially at the long end of the curve where the government’s pump-priming have had less of an effect.