Why Africa's top stock markets are on a roll
July 31, 2023
With US and European stock markets in severe bubble territory, global investors are increasingly betting on emerging markets to grow their portfolios. While opportunities in Asia and South America hog the headlines, some analysts think Africa offers the most untapped potential.
Johannesburg leads the pack
As one of the emerging market BRICS economies, South Africa has seen a lot of interest from foreign investors since the end of the pandemic. In January, the Johannesburg Stock Exchange (JSE), hit an alltime high. The all-share JALSH index rose to 78,450 points and has remained elevated through the year.
The JSE has a total capitalization of $1,356 trillion (€1,226 trillion), making it Africa's largest stock market and the 17th largest in the world.
The exchange mostly features South African firms that generate a significant portion of revenues in the national currency, the rand, but some of the biggest listed firms have a strong international presence.
They include miners BHP Billiton and Anglo American, along with British American Tobacco and the luxury goods maker Richemont. Many of them are also listed abroad.
"The JSE provides the most liquid exchange in Africa to capitalize on a diverse range of investment opportunities which including a strong representation of mining, banking and industrial counters," Shaun Murison, senior market analyst at IG in Johannesburg, told DW.
Nearly two-thirds of earnings from shares in the JSE are derived in foreign currencies and firms that earn income in foreign currencies do better when the rand is weak. They are known as rand-hedge stocks.
South Africa's largest listed firms are Naspers, a major internet and tech investor, with a market cap of $39 billion, and financial services giants FirstRand and Standard Bank, alongside MTN, Africa's largest mobile operator.
Naspers, through a subsidiary, is a major investor in Chinese tech firm Tencent. It bought a 46.5% stake for just $32 million in 2001. Although it has since trimmed that stake to 29%, it is now worth more than $200 billion.
The current strength of the JSE comes despite elevated inflation in South Africa, which reached 6.8% in April, high unemployment, slow economic growth, crime and corruption. The country is also currently facing its worst-ever power cuts of up to 16 hours a day.
Analysts say that despite many problems, South Africa has a lot to attract foreign investors, including well-developed infrastructure, a skilled workforce and, of course, natural resources.
In April, President Cyril Ramaphosa set a target for the country to achieve foreign direct investment (FDI) of 2 trillion rand ($110 billion, €104 billion) within five years, a rise of 80% compared to current inflows.
Murison told DW there is a "strong possibility" that the JSE All-Share index will retest its January highs in the next few months.
Renewed confidence helps Nigeria to second
Nigeria's stock exchange was founded in Lagos in 1960. The Nigerian Exchange Group (NGX), as it is now known, has grown to become Africa's second-largest with a market cap of $45.9 billion.
Last year, NGX was the 4th best-performing stock index in the world, with a 19.99% investment return, according to the MSCI All-Country World Index (ACWI), which tracks some 3,000 stocks around the world.
The result was mostly due to the strong rebound in global oil and gas prices which generally help the energy listed stocks.
In June, the NGX All-Share index hit a 15-year high, reaching above 57,437 points. It currently remains about 500 points off its 2008 alltime high.
International investors had shied away from the West African nation in recent years due to years of political turmoil and, more recently, foreign exchange controls imposed following the oil price collapse during the COVID-19 pandemic. The rules made it difficult for investors to repatriate profits,
However, the new government of President Bola Tinubu recently announced sweeping currency and economic reforms, so foreign investors are back with a vengeance.
Banking and insurance shares have been the biggest winners in the recent rally, although cement firms Dangote Cement and Bua Cement currently make up two of the top three listed firms, with market caps of 5.6 trillion Naira ($7.2 billion, €6.5 billion) and 3.4 trillion Naira respectively
The NGX has benefited from rising inflation, which hit almost 23% in June, as investors have tried to protect their savings. However, with Nigerian bond yields reaching nearly 13%, some analysts think investor appetite for a further stock market rally is limited as bonds are a safer bet.
The best of the rest
Two of the other Top 5 stock markets in Africa are in the north of the continent.
In third place is Morocco's Bourse de Casablanca. Created in 1929, the same year as the Wall Street crash, Bourse de Casablanca has 76 listings with a total market capitalization of $63.6 billion.
In fourth place is the Egyptian Stock Exchange, followed by the Nairobi Stock Exchange in fifth.
Africa is home to a total of 29 stock exchanges with a combined market capitalization of around $1.6 trillion, according to the AFSIC, Investing in Africa website.
Edited by: Uwe Hessler