How African Equities and Currencies feared in 2016

LAGOS (Capital Markets in Africa) -African equity markets settled in the South Pole
2016 was a difficult year for African markets, each in varying degrees. Most of the African equity index ended in negative zone at the end of 2016, with six positive growths and twelve negative returns on a local currency basis. The performance was more disheartening on a US-dollar adjusted basis, with just four equity markets produced a positive return and average return across markets remained negative due largely to the depreciation of most African currencies against the US dollar during the year. These unimpressive performances across African equities can be attributed to interlocked negative feedback loops between declining commodity prices, depreciating local currencies, and disappointing macroeconomic data in various African countries.

On a local currency basis, 2016 average return across eighteen African stock indices was 4.2 percent (relative to -6.7 percent, 9.5 percent and 29.2 percent recorded in 2015, 2014 and 2013 respectively). The 2016 returns range from –26.8 percent recorded by the Zambian equity market (measured by LSE All Share) to 76.20 percent attained by Egyptian equity (measured by EGX 30 Index).  However, on a US-dollar basis, the Egyptian equity index lost 23.96 percent, due largely to Egyptian pound devaluation on 3 November 2016.

Nigerian equity market (NSE All-share index) declined by 6.2 percent  in 2016 (compare to -17.4 percent, -16.1 percent and +47.2 percent in 2015, 2014 and 2013 respectively on a local basis) to close the year at 26,874.62 points after peaking at 31,071.25 points in June 2016, an increase of 8.48% over the 2015 closing value. Furthermore, foreign investors were badly bashed with a loss of about 40.9 percent on a dollar-adjusted performance. Likewise, the Nigerian equity market capitalization closed 2016 at NGN 9.3 trillion after dropping NGN 635 million from a market capitalization of NGN 9.9 trillion at the end of 2015 and NGN 13.2 trillion at the end of 2013. Over the course of 2016, the Nigerian All Share index ended in the north zone in the months of February, May, June, September, and December.   

A glance at South Africa reveals that the Johannesburg All-share index closed 2016 at 50,653.54 with a marginal decreased of 0.1 percent over the 2015 closing point. In the months of September and October, the equity witnessed significantly dropped by 4.1 percent due to South Africa’s President maneuvering a politically-motivated attack on the integrity of its finance ministry. However, on a dollar basis, the South African equity rewarded foreign investors with a whopping return of 12.7 percent in 2016 against loss of 24.0 percent in 2015. The equity market capitalization closed 2016 at ZAR 10.2 trillion against ZAR 10.6 trillion at the end of 2015. March was a very good month with a gain of 5.7 percent, followed by May (1.8 percent), April (1.4 percent), July (1.1%) and December (0.9 percent). Whereas, January and June were worst months with 3.1 percent down.

In the positive territory, Moroccan equity market surged by 30.5 percent to end at 11,644.22 points and Zimbabwean equity market (measured by ZSE Industrial Index) advanced by 25.8 percent to close the year at 144.53 points. Also, Namibia Overall Index ended 2016 at 1,068.59 points after gaining 23.5 percent (compared to 7.6 percent gain in 2015). Swaziland equity index and Tunisian equity index accelerated by 16.2 percent and 8.9 percent respectively.

Still, on a local currency basis, Ugandan All Share index depreciated by 16.2 percent in 2016 relative to a loss of 8.5 percent in 2015. Ghanaian equity market (measured by GSE Composite Index) plunged by 15.3 percent (24.4 percent on dollar-adjusted performance). Similarly, Botswana slide by 11.3 percent (-6.6 percent in dollar term), both Malawi equity market (the MSE All Share Index) and Kenyan equity market (NSE All Share Index) went down by 8.5 percent to close the year at 13,320.51 points and 133.34 points respectively.

Walking towards depreciation and devaluation
A key investment risk in 2016 is the currencies depreciation, shortage, and volatility as well as uncertainty of African currencies against US dollar. Out of the thirty African currencies monitored by Capital Markets in Africa, only eight currencies appreciated against the US dollar in  2016, with Zambia Kwacha appreciated the most by 9.7 percent.  Other appreciating currencies are Somali Schilling (5.2 percent), South African Rand (4.9 percent), Mauritius Rupee (1.0 percent), Liberian Dollar (0.6 percent), Eritrea Nakfa (0.5 percent) and CFA (0.2 percent).

Egyptian pound and Nigerian naira are the most devalued African currencies in 2016, depreciated by 131.7 percent and 58.5 percent respectively. This is as a result of, removal of all foreign exchange restrictions and unpegged the Egyptian pound from the US dollar on 3 November 2016 by Egyptian Central Bank. Likewise, Nigeria announced the adoption of a flexible exchange rate policy and the landmark introduction of a naira-settled OTC FX futures market in June 2016.

To get a better view of how African currencies evolved over the course of 2016, the heat map below shows the end of the month returns as well as 2016 year-to-date return. The indicator’s performance is shaded as red cells show the 25th percentile returns attained, yellow the 50th percentile and green denoted the 90th percentile returns attained across the 12 months for the 30 African equity markets considered.

Looking at the heat map, Egyptian pound went down by 102.0 percent in November (as a result of devaluation) while Nigerian naira cumulative depreciated by 54.9 percent in the month of June (40.9 percent) and July (14.0 percent) due to change in FX regime. The South African rand appreciated against the US dollar in seven months, with the months of March and September witnessed the most appreciation of 7.0 percent and 6.8 percent respectively.

Leave a Comment