African Stocks Beat the World: While the Rest of the World May Wish to Ignore African Stock Markets Because of Their Relatively Small Sizes, There Is No Getting Away from the Fact That Africa Has Indeed Outperformed All Others. Frank Senyo Dewotor of the DATABANK GROUP Makes the Point

Article excerpt

The renowned investment guru George Soros once made the observation that Africa is not even visible on the radar screens of global portfolio investors. It's probably more accurate to say that African stock markets are simply ignored by the major western media houses such as CNN, BBC and Bloomberg. At the close of last year, the West's media houses were reporting the inspiring recovery of the markets in America, Europe and Asia--yet not even a line about Africa.

The BBC reported that Thailand was the best performing market in the world, with an index return of 128% in US dollar terms, without realising that some markets in Africa outperformed Thailand and other major markets.

The marginalisation of the financial markets in Africa in the western media is probably understandable given that the markets in Africa are relatively small and shallow.

African markets posted an average index return of 41% in 2003, in US dollar terms. If Zimbabwe is excluded, average returns on African stocks reached 48% in 2003. This compares favourably with a return of 30% by the MSCI global index, 32% in Europe, 26% in the US (S & P) and 36% in Japan (Nikkei).

Last year, Ghana was the best performing stock market in the world out of 61 markets surveyed. The Ghana stock market reported an index return of 144% in US dollar terms, and 157% in local currency terms.

Out of the 25 listed equities on the Ghana bourse with a total market capitalisation of $1.4bn, only one recorded a negative return while 13 stocks registered gains in excess of 100%.

Over the two-year period of 2002-2003, Ghana still ranked top globally with a compounded index return, in US dollar terms, of 256%. The bullishness of the market in Ghana over this period was underpinned by impressive corporate results, cheap valuations, and a consistently improving macroeconomic environment is reflected in relative exchange rate stability, improved foreign reserves, declining inflation, falling interest rates and an inspiring S & P sovereign credit rating of B+.


Uganda, Kenya, Egypt, Nigeria and Mauritius were other very strong performers with returns in US dollar terms exceeding 50% last year.

Kenya stocks are attracting investor votes due to a smooth political transition two years ago, a commitment to macroeconomic reforms, significant steps taken by the new government to tackle corruption, and the resumption of foreign aid that have raised hopes for the economy's prospects. (See story on page 56).

Bullish crude oil prices, exchange and interest rate stability and cheap valuations have also helped Nigerian stocks to be in the good books of investors.

Zimbabwe, for the second year in a row, was the worst performing market in US dollar terms--not only in Africa but also in the entire world. While index returns in Zimbabwean dollars was a strong 292% in 2003 as a result of negative real interest rates and the relative unattractiveness of alternative investment instruments, index returns in US dollar terms were a disappointing -73% as the local currency depreciated sharply and inflation ballooned to over 500% due to the economic problems created by President Mugabe's controversial land reform programme.


In broad terms, stock market returns in Africa have been particularly helped by a weak US dollar for three main reasons. First, the weakness of the dollar implies a relative fall in the exchange rate risk for foreign investors in African stock markets and this also prompted traditional investors in the US dollar in Africa to seek alternative investments.

Second, imported inflation via a strong dollar in the past has been a major cause of inflationary pressures in many African countries. The weakness of the dollar has thus reduced inflationary pressures in several African countries and created room for interest rates to fall. …