Category Archives: Kenya

Making Sense Of Angola Stock Exchange Plans

Africa Stock Market Cap FiguresBloomberg had a story out late last week about plans for an Angola Stock Exchange, entitled, “Angola Plans 6th-Biggest Africa Bourse With Value at 10% of GDP”. Since we (and by we, I mean you and me, in an apparently small minority) are resolved to have a realistic approach in discussing economic prospects anywhere, here are the main points of interest from the article once we strip away all the spin and optimism:

  • Angola, Africa’s second-biggest oil producer, expects its stock exchange to have a market value of 10 percent of gross domestic product within 18 months of its startup, making it at least the continent’s sixth biggest.
  • The capitalization of the exchange, set to start in 2015, would be a minimum of $11 billion based on last year’s output of $114 billion.
  • The Angolan government is forecasting economic growth of 7.1 percent this year, down from 7.4 percent in 2012.
  • A secondary bond market will start this year to help develop a yield curve.
  • South Africa’s bourse is the continent’s largest at $842 billion, more than double its GDP.
  • Angola ranks 157th out of 176 countries on Transparency International’s 2012 Corruption Perceptions Index.

The investment bank Imara just put together this brief which summarizes some key data points for other stock markets in Africa. There’s some good trading info in there but missing is any indication of market capitalization figures. I should add that this isn’t Imara’s fault necessarily as this data is generally pretty hard to come by.

The thing is, this isn’t the first time Angola has made efforts at opening a stock exchange. In December 2007, allAfrica.com ran a story entitled, “Angola: Stock Exchange Opens in 2008”, but I definitely remember hearing about this before then, though not as far back as 2003, which is when this article dates the beginning of the process.

In any event, here’s a more “recent” take on the Angola stock exchange prediction, from How We Made It In Africa in 2010. Apparently, Angola’s planned exchange was then expected to be the third largest in Africa. Particularly striking from the 2010 article was this little snippet:
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Chart of the Day: Sub-Saharan Africa’s Mobile Phone Market

Lots of room to run here. What this doesn’t give us a clear view of though is undersubscription relative to absolute market size. Nigeria would obviously be the winner on that front.

2013.03.18.Sub-Saharan Africa Mobile

How Oil Divides The Economies Of Africa Into Winners And Losers

I can’t get this article from the FT’s William Wallis out of my head. The headline is “Currencies pressed by trade imbalances” but this really only captures a small slice of the picture. Check it out:

With import demand outstripping export growth in some of the continent’s fastest expanding economies, rising trade imbalances are putting pressure on currencies. African and international investors hedge against this by spreading risk – one factor that is driving African banks and businesses across borders.

But even an expansive footprint is not always enough. MTN, the continent’s leading telecoms provider with a presence in 21 African countries, announced that currency swings had weighed heavily on its earnings.

More broadly says Razia Khan, head of Africa research at Standard Chartered Bank, widening current account deficits are the result of an investment and consumption boom, new resource exploration activity and “the scaling up of output”. Ghana fits into this category. It is also on the risk radar this year as heavy investment in oil and gas infrastructure continues, with only modest increases forecast for oil output.

A weak currency does not help those African countries with limited capacity to ramp up exports in response. Kenya cannot for example suddenly double tea production. So, it is forced to defend its currency to avert importing inflation.

Loose monetary policy in major developed economies has driven a rush of short-term funds into African markets. David Cowan, Africa economist at Citibank, says the way in which central banks defend their currencies and the margins that foreign investors earn will be one determining factor in how long the appetite endures.

I don’t disagree with any of this but would point out that this is all just the tip of the iceberg and there are a lot of ways to slice this.

One is that just six of Africa’s 53 countries account for two-thirds of the entirety of Africa’s $2.0 trillion economy. In descending order of nominal GDP: South Africa, Nigeria, Egypt, Algeria, Angola and Morocco. I think a pie chart best demonstrates this relationship:

2013.03.20.Africa 2013 GDP composition

Another is to think about how much of Africa’s total economy is driven by oil exports. Let’s try the following table to demonstrate this:

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Chart Of The Day: Emerging Markets Currency Wars Landscape

This is interesting:

2013.03.06.Swan FX Diagram

2013.03.06.Swan FX Table

And here’s an explanation of what we’re looking at:

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Chart of the Day: The top 10 stock exchanges of 2012

This is actually going to be a few charts, because the first chart as you can see looks ridiculous:

Top 10 Frontier Market stock exchanges v DJIA

It should go without saying that there’s something very wrong with this picture, and indeed Miguel Octavio sums it up better than anyone I know here, but the long and short of it is that runaway inflation and an ass-headed capital controls regime has wildly overstated the “returns” in Venezuela. So let’s get rid of Venezuela and look at how the rest of these stack up against the Dow Jones Industrial Average. Here’s what we get:

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“Zambia is an Argentina without a Christina Kirchner”

Everything here I consider of equal importance but the fact of how we digest information is that something must come first. So let’s start with that headline quote, which came from Michael Power of Investec Asset Management in this 12 minute interview. Lest you don’t have 12 minutes to watch it (which is what I’m here for), the short version of what Mr. Power has to say is that Investec rejects the broad categorization wrought by the terms “emerging markets” and “frontier markets” for something Investec has taken to calling “horizon markets”.

Yes, you read that correctly. Pardon me if I’m late to this party, but this is the first I’ve heard of this. Horizon markets apparently includes “second tier” emerging markets, which consists of a handful of countries less prominent than the BRICS but with investable entry and exit points far ahead of any failed state. Here’s a chart Investec included in London-based Clear Path Analysis’ recently released overview of Frontier Markets investing:

Also noteworthy from the video interview, Investec likes the following when it comes to investing in Africa:
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Chart of the day: Kenya interest rates, inflation, gettin’ jiggy wid it

Interest rates and inflation in Kenya are sliding fast, as the following charts show:

So what’s the shilling been up to? As the former baseball great Bill “Spaceman” Lee once said, “Believe none of what you hear and only half of what you see.”:

Chart source: oanda.

Anyone care to explain what’s wrong with this picture? Don’t higher interest rates lead to currency appreciation, or is Kenya stuck on that archaic outdated notion of interest rate parity? Maybe this is what happens with markets that scare mainstream money: they actually function according to theory. Could this be?

 

Does Africa need food fast or fast food?

I know Bloomberg TV doesn’t care what I think about its coverage, but its increasing ooh-aah-gee-whiz approach to frontier markets really drags it ever more lowbrow and any honest broadcast journalist by definition should have a hard time denying this. But despite the deluge of tired platitudes (emerging middle class, Africa’s $1.8 trillion economy, small business empowerment), it does manage to pull out one telling quote from American entrepreneur Alden Edmonds in his quest to bring the Subway franchise to East Africa at 1:30 into this segment:

“There’s an informalness to the way you do business there, where someone might expect a gratuity. As an expat, you’re sort of marked as someone who might be willing to do give a little extra to help get the transaction done.”

It’s a brief segment that no doubt is going to be lost among the far more influential breaking news in frontier markets today, but this doesn’t make it any less important. Continue reading

Wasatch’s Laura Geritz likes Kenya, Nigeria, Sri Lanka

Maybe this is just my bias, but there’s something about the way Fox Business News discusses frontier markets funds and investing that makes me wonder why they even bother. But then, I suppose something is ultimately better than nothing. Anyway the real focus of this is Wasatch’s Laura Geritz out of Salt Lake City. Notice her counter to the awkwardly phrased BRIC question, as well as what draws Wasatch to frontier markets: low debt/GDP ratio and strong domestic consumer economies:

Original source link here.

Renaissance Asset Managers’ Sven Richter likes Kenya, Nigeria, Zimbabwe

From ABN’s power lunch, July 27. Specifically, Richter likes Kenya for its banks, consumer goods and its status as a hub in the best integrated region in East Africa, Nigeria for its telecom potential and Zimbabwe for its progress with political sanctions from the EU. Also, direct investment in Africa makes more sense than proxy investment through companies headquartered in developed countries that claim activity in Africa. The full video is eight minutes and overall a pretty good summary of the general macro outlook in African markets. Original link here.

What Higher Oil Prices Mean for Sub-Saharan Africa

I just finished reading Alterio Research’s new Frontier Africa report, “Surging oil prices – gift or curse?” which frankly could quite easily be renamed, “Dutch Disease by any other name”. The report (available for free here) attempts to measure the impact of rising oil prices on inflation, fiscal stability and economic growth on the following countries: Angola, Botswana, Ghana, Kenya, Namibia, Nigeria, Tanzania and Zambia.

The essential takeaways here that I see are the following:
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Political Risk in South Africa and Kenya

Business Monitor International assesses political risk in South Africa and Kenya following a recent trip to the countries by Lisa Lewin, Head of Sub-Saharan Africa Country Risk, and Matthew Searle, Sub-Saharan Africa analyst. Following are my notes summarizing the podcast.
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Investing in Africa: Risks, Opportunities, Challenges [Part 1]

Lots of stuff in here for Frontier Markets junkies. Foreign investment in Africa is up by an average of 80 percent over the past decade and forecasts indicate it’s likely to reach $150 billion by 2015, so this is a big topic that I already know I’m going to come back to.
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