African capital market performance up half-year

Analysts in Data Bank group say: "Lush liquidity, benign money market conditions, strong first quarter earnings season, firm exchange rates and rising foreign investor interest propelled African markets up in the half year."

The report says that this year is increasingly looking good with a fifth consecutive year of mouth-watering returns on the continent. Africa’s half year All share index excluding South Africa gained 26 percent against the corresponding period of 2006 in United States dollars (USD).

This compares favourably to returns in other regions, Asia 7 percent; Latin America 25 percent; Europe, 10 percent, and North America 7 percent. Africa also outperformed other emerging markets as a whole; it gained 16 percent while the world index was up 9 percent during the half-year.The insurance sector was the strongest performer on the continent, rising 62 percent USD, thanks to the reforms in that sector in Nigeria that saw a plethora of recapitalisations, public offers as well as mergers and acquisitions (M&A) activities.

Another factor is the frenzied increased exposure to the Nigerian banking sector by both local and foreign investors and a number of high-profile, public offerings that generated a strong rally in the sector. The banking sector in other countries also performed strongly but was driven up more by fundamentals. On the whole, the African banking sector gained 58 percent USD during the period in review.

The report also says that relative low interest rates across the continent are allowing banks to generate more quality growth from loan expansion and the improvement of asset quality.

On Nigeria, the report identifies excess liquidity, generated by petrodollars, and the outpouring of foreign investor’s funds into the Nigerian market as some of the issues that provided the springboard for another strong performance, which is 65 percent USD of the market.

Notably, state pension fund and foreign institutional investors have poured huge sums into the market. For instance, in June Renaissance Capital group, a Russia-based investment bank, is about to invest $1-billion in the economy. Offshore hedge funds have also boosted increased the country’s financial markets.

At market capitalisation of $61.78 and an average, Price Earning (PE) ratio of 27.4, Nigeria is third on the ranking behind Egypt and South Africa, which recorded $102.6-billion and $402.4-billion respectively.

In the ranking, Zenith Bank, First Bank, Union Bank, United Bank, Guaranty Trust Bank, Oceanic, Intercontinental Bank and Nigerian Breweries plc, topped the list of the most capitalised equities in frontier Africa rating within the period.

"We are expecting robust economic performance across the continent in the second half of the year and Gross Domestic Product (GDP) growth this year could reach 6 percent. Continued economic reforms, strong commodity prices and growing confidence of foreign investors in the continent’s prospects are some of the factors that will propel growth."

The main risk is rising oil prices that may put upward pressure on inflation and interest rates in several oil importing countries. However, with reforms implemented over the years and improved foreign reserves in several countries, many of the economies are in a position to handle such exogenous shocks better than the past."