The continent’s bonds and stocks are being hammered more than those
in most other regions amid a rout that’s wiped over $1 trillion off
developing nations’ equity markets this quarter and sapped confidence
from Brazil to China.
Africa’s status as the world’s fast-growing continent after Asia has
done little to spare it, as traders’ appetite for higher yields wanes
and they rush to cut exposure to the riskiest markets. The downturn,
triggered by investor concerns over a strengthening dollar and rising
US Treasury rates, has accelerated as
tensions worsen between Washington and Beijing over trade.
Since the end of March, African Eurobonds, local-currency debt and
equities have posted worse returns than those for emerging markets as a
whole. Currencies have performed in line with peers, though they’re
still down more 6 percent against the dollar.
Sovereign debt
African Eurobond yields are rising more sharply than the
emerging-market average. Average rates on dollar notes issued by African
governments have climbed to 7.6%, around 200 basis points above
where they were in January, according to Standard Bank Group. Aside
from a brief spike after US President
Donald Trump’s election, they’re now at two-year highs.
Oil producers Angola, Cameroon, Gabon and Nigeria have seen their
average yields climb above 8%, despite rising crude prices.
Zambia’s, meanwhile, have soared to more than
11% as investors fret that President
Edgar Lungu won’t strike a bailout deal with the International Monetary
Fund that they think is necessary to ensure his administration can
pay-off its debts.
Local-currency bonds
Global money mangers have also sold off local-currency bonds. They
are Africa’s worst-performing assets this quarter, with the AFMI
Bloomberg African Bond
Index, which includes Botswana, Egypt, Ghana, Kenya, Namibia, Nigeria,
South Africa and Zambia, losing 12% in dollar terms.
South African securities have been particularly vulnerable, with
traders concerned new President
Cyril Ramaphosa will struggle to boost growth and ratings companies
warning that plans to allow for land expropriation without compensation
would deter investment. Rand bonds are the
worst-performers in emerging markets this year and foreign investors
have sold a net $5bn of them this quarter, a record amount.
Currencies
The rand itself has been under pressure too. It’s weakened 15% against the dollar since March, more than any other
major currency tracked by Bloomberg, and is heading for its worst quarter since September 2011.
It’s far from the only African unit to be suffering. Ghana’s cedi and
Zambia’s kwacha are both down more than 5% this quarter. Even
currencies that are holding up better, such as the Mauritian rupee and
Egyptian pound, have pared or reversed gains from the first three months
of the year.
Equities
Stocks across the continent have been hit. While none of the major
bourses is in a bear market, unlike China’s, which
entered one this week, they are heading in that direction. Those in
Egypt, Kenya, Morocco, Nigeria and South Africa have all experienced
technical corrections, meaning they’re down 10% from their 2018
peaks. They’ll be in bear markets if the fall extends to 20%.
The only US exchange-traded fund solely tracking Nigerian equities,
the Global X MSCI Nigeria ETF, has shed 25% of its market
capitalisation this quarter. The fund hasn’t seen any inflows since January
24 and outflows since then have totaled $25m. ETF investors are
similarly wary of Egypt. The market value of the New York-listed VanEck
Vectors Egypt Index ETF has dropped almost 40% since mid-April.
The African sell-off may accelerate if growth slows. That may already
be happening, according to London-based Capital Economics.
Some of the biggest economies, including South Africa, Nigeria,
Angola, Kenya and Ivory Coast, “stumbled in the first part of the year”,
Capital Economics analysts including
Neil Shearing and
John Ashbourne said in a note to clients on June 27. While they expect
an improvement later in 2018, “the risks to our growth forecasts now lie
to the downside”.
The outlook, for South African equities at least, is significantly
bleaker than at the start of the year. The forward price-to-earnings
ratio, based on estimates for the next 12 months, of shares on
Johannesburg’s main index has fallen to a four-year low of 13.2 from 16
in January. That’s increased the discount investors are demanding versus
the MSCI World Index of stocks.
Things could get worse over the next three months if trade tensions between the US and China escalate, according to
Michele Santangelo, director for equity research at Independent Securities in Johannesburg.
“It really does depend on what trajectory those trade discussions
actually go into,” Santangelo said. “I’m hoping its a better quarter
because its been a very difficult year if you look at all the numbers
across the board.”
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