Bubble Trouble - Opportunities and Risks In Sub-Saharan Africa Equity Markets

Publication Date	September 2008
Publisher	Business Monitor
Product Type	Report
Pages	37
ISBN Number	not applicable
Product Code	BMI02828

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Summary

Sub-Saharan African (SSA) financial markets have witnessed substantial interest from foreign investors over the past two years, with unprecedented levels of capital flowing into the continents fixed income and equity markets during that period. With the region offering attractive returns and remaining largely unaffected by the sub-prime crisis, investment banks and hedge funds around the globe have been quick to gain a foothold in SSA. Indeed, the staggering growth of Nigerias stock market-the largest in SSA after that of South Africa-highlights the significance that SSA capitals markets have gained among the international finance community. While the Lagos All-Share Index (LASI)s market capitalisation amounted to US$19.9bn at the end of 2005, this figure has doubled on a yearly basis since then, climbing to US$40.1bn in 2006 and US$107.9bn in 2007.

However, as history has shown on many occasions, exuberance in financial markets can lead to the formation of bubbles, which, when bursting, can cause a significant revaluation in assets prices. The massive, ongoing corrections in several Central Eastern European (CEE) frontier stock markets are excellent cases in point. In particular, equities in Macedonia and Bulgaria experienced phenomenal growth over the course of 2006 and the first half of 2007 thanks to massive foreign inflows, yet are currently undergoing extremely painful adjustments, with the bottom of the bear market not yet in sight.

In both cases, the writing had been on the wall, as technical chart patterns clearly suggested that the markets were heavily overbought and were thus due for a significant correction.

While being careful not to make direct comparisons between the economic make-up of CEE and Sub- Saharan Africa, we believe that the recent surge in capital inflows might have overextended some of SSAs key equity markets, in particular those of Ghana, Mauritius and Nigeria. Of course, these markets have come from an extremely low base and therefore had considerable room for catching up. Yet worrying technical chart patterns and surging priceearning ratios, combined with scarcer capital inflows due to ongoing tight global credit conditions, could suggest the formation of a potential equity bubble on the brink of deflating. In fact, when looking at the price movements of the Lagos All-Share Index (LASI) over the past three months, it is not hard to argue that the index is already in the midst of a major correction, with further possible downside ahead over the medium term. In similar fashion, with losing more than 17.0% since its peak in mid February, the Mauritian All-Share Index is also at the edge of dipping into a bear market, which could set up further declines going forward.

Content

Opportunities & Risks in Sub-Saharan African Equity Markets
Chart: following The Central Eastern European Experience?
- Africa - Ghana All-Share Index (Top) & Nigeria All-Share Index
- South Africa
- Equities: Beware The Commodities Bear
Chart: Spot The Correlation
- South Africa - Jalsh (Lhs) & Hsbc Global Mining Index
- Watch Those Metal Prices
- and Dont Forget about Domestic Concerns
Chart: Breakthrough
- South Africa - Spot Gold and Platinum Prices (US$/Oz)
- Longer-Term Opportunities Still Waiting
- Economic Analysis
- 2009: Cloudy Economy Has A Silver Lining
Chart: A Short-Lived Bounce?
- South Africa - Real Gdp Growth and Sub-Components (%)
- Risks to Outlook
- Political Risk Analysis
- Risky Years in Politics
- Table: South Africamacroeconomic Data and Forecasts
- Period 2003 - 2012f, Population, Mn [4], Nominal Gdp, US$Bn [5], Gdp per Capita, US$ [5],
- Real Gdp Growth, % Change Y-O-Y [6], Budget Balance, Zarbn [1,7], Budget Balance, % of
- Gdp [1,8], Consumer Prices, % Y-O-Y, Eop [2,6], Exchange Rate Zar/US$, Eop [9], Exchange Rate
- Zar/US$, Ave [9], Exports, US$Bn [6], Imports, US$Bn[6], Trade Balance, US$Bn [6], Current
- Account, US$Bn [6], Current Account, % of Gdp [5], Forex Reserves (- Gold), US$Bn [3,9],
- Import Cover, Months G&s [10]
- Policy Continuity and Mbeki under Pressure
- Unity Just A Facade
- The Trial of Jacob Zuma
- Nigeria
- Fundamentals Strong despite Losses
- Weaknesses Manifest
- Fundamentals Remain Strong
- Economic Analysis
- Financial Sector Shines
- Banking Sector: Rapid Growth to Continue
Chart: Correction in Process
- Top Nigerian Banking Equities by Market Capitalisation
- Insurance: The next Big Thing?
- Table: Nigeriamacroeconomic Data and Forecasts
- Period 2003 - 2012f, Population, Mn [2], Nominal Gdp, US$Bn [3], Gdp per Capita, US$ [4],
- Real Gdp Growth, % Change Y-O-Y [3], Budget Balance, Ngnbn [3], Budget Balance, % of
- Gdp [5], Consumer Prices, % Y-O-Y, Eop [3], Exchange Rate Ngn/US$, Eop [6], Exchange Rate
- Ngn/US$, Ave [7], Exports, US$Bn [8], Imports, US$Bn [2], Trade Balance, US$Bn [9], Current
- Account, US$Bn [2], Current Account, % of Gdp [10], Forex Reserves (- Gold), US$Bn [3],
- Import Cover, Months G&s [5], Oil Production, 000 B/D [11], Opec Basket, US$/B, Ave [1,12]
Chart: Insurance Peaks in Q108
- Top Nigerian Insurance Equities by Market Capitalisation
- Ghana
- Potential Equity Bubble, but Opportunities Remain
- Fundamentally, The Tide Has Turned
- but Once The Bubble Bursts
Chart: Unsustainable Surge
- Ghana - All-Share Equity Index
- Banking Consolidation Ahead
- Ones to Watch, Eventually
- How to Gain Exposure in The Meantime
- Economic Analysis
- Growth of 6.4% in 2008 despite Challenges
- Economy Overheating, but Set to Cool
- Oil to Draw in Private Investment
Chart: 2008 Still A Peak Year
- Ghana - Nominal Gdp (US$Bn) & Real Gdp Growth (%)
- Risks to Outlook
- Political Risk Analysis
- Elections 2008: Run-off Beckons
Chart: Its Getting Hot in Here
- Ghana - Real Growth in Economic Activity (% Y-O-Y)
- Npp to Capitalise on Health and Education Record
- Table: Ghanamacroeconomic Data and Forecasts
- Period 2003 - 2012f, Population, Mn [3], Nominal Gdp, US$Bn [4], Gdp per Capita, US$ [5],
- Real Gdp Growth, % Change Y-O-Y [4], Budget Balance, Ghsbn [4], Budget Balance, % of
- Gdp [6], Consumer Prices, % Y-O-Y, Eop [4], Exchange Rate Ghs/US$, Eop [3], Exchange Rate
- Ghs/US$, Ave [3], Central Bank Policy Rate, % [1,4], Exports, US$Bn [4], Imports, US$Bn [4],
- Trade Balance, US$Bn [4], Current Account, US$Bn [2,4], Current Account, % of Gdp [2,6],
- Forex Reserves (- Gold), US$Bn [7], Import Cover, Months G&s [8]
Chart: A Two-Horse Race
- Ghanaseats in Parliament following 2004 Election
- Inflation, Corruption: Bad for Npp, but Good for Ndc?
- Limited Economic Policy Risk
- Oil: Not A Campaign Issue
- Our Core Scenario Is Stability at Polls
- Kenya
- Equities: A Recovery Play
- Nse-20 Caught in A Maelstrom
Chart: Short-Term Losses Ahead
- Kenyanse-20 Equity Index
- Fundamental Turnaround in Store
- Banking on Gains
- Ict Calling
- Table: Kenyamacroeconomic Data and Forecasts
- Period 2003 - 2012f, Population, Mn [4], Nominal Gdp, US$Bn [5], Gdp per Capita, US$ [6],
- Real Gdp Growth, % Change Y-O-Y [1,7], Budget Balance, Kesbn [2,8], Budget Balance, %
- of Gdp [8], Consumer Prices, % Y-O-Y, Eop [9], Exchange Rate Kes/US$, Eop [10], Exchange
- Rate Kes/US$, Ave [10], Exchange Rate Kes/Eur, Eop [10], Exports, US$Bn [5], Imports,
- US$Bn [5], Trade Balance, US$Bn [5], Current Account, US$Bn [5], Current Account, % of
- Gdp [6], Forex Reserves (- Gold), US$Bn [11], Import Cover, Months G&s [3,6]
- Mauritius
- Equities Index Faces Strong Headwinds
- Table: Mauritiusmacroeconomic Data and Forecasts
- Period 2003 - 2012f, Population, Mn [1], Nominal Gdp, US$Bn [2], Gdp per Capita, US$ [2],
- Real Gdp Growth, % Change Y-O-Y [1], Budget Balance, Murbn [1], Budget Balance, % of
- Gdp [1], Consumer Prices, % Y-O-Y, Eop [1], Exchange Rate Mur/US$, Eop [1], Exchange Rate
- Mur/US$, Ave [1], Exports, US$Bn [1], Imports, US$Bn [1], Trade Balance, US$Bn [1], Current
- Account, US$Bn [1], Current Account, % of Gdp [2], Forex Reserves (- Gold), US$Bn [1], Import
- Cover, Months G&s [2]
- Ratings Methodology
- Outline of Ratings
- Introduction
- Brief Outline
- Composite
- Table: Bmi Risk Ratings
- Score: 80-100, 70-79, 60-69, 50-59, 49
- Long Term Political Ratings
- Table: Long-Term Political Ratings
- Characteristics of Polity, Characteristics of Society, Scope of State, Policy Continuity
- Short Term Political Ratings
- Table: Short-Term Political Ratings
- Policy-Making Process, Social Stability, International Environment, Policy-Continuity
- Long Term Economic Rating
- Table: Long-Term Economic Ratings
- Structure of Economy, Economic Activity, Monetary Indicators, Fiscal Indicators, External
Indicators, Financial Indicators
- Short Term Economic Rating
- Table: Short-Term Economic Ratings
- Economic Activity, Monetary Indicators, Fiscal Indicators, External Indicators, Financial
Indicators
- Business Environment Rating
- Table: Business Environment Ratings
Infrastructure, Institutions, Market Orientation
Table: Bmi Short & Long Term Political Risk Ratings
- Countries: Norway, Sweden, Canada, Japan, Austria, United States, France, Germany,
- Australia, Israel, Mauritius, Poland, Hungary, Italy, Hong Kong, Taiwan, Singapore,
- Romania, Kuwait, South Africa, India, Botswana, Egypt, Namibia, Tunisia, Kazakhstan,
- Ghana, Mexico, Lesotho, Uganda, Argentina, Colombia, Tanzania, Venezuela, China, Libya,
- Brazil, Mozambique, Algeria, Philippines, Turkey, Madagascar, Burundi, Gabon, Zambia,
- Equatorial Guinea, Iran, Nigeria, Sierra Leone, Kenya, Iraq, Cameroon, Ukraine, Cote Divoire,
Angola, Sudan, Zimbabwe, Dr Congo
Table: Bmi Short & Long Term Economic Risk Ratings
- Countries: Sweden, Norway, Taiwan, Singapore, Canada, Kuwait, Hong Kong, Mexico,
- Austria, France, Australia, China, Israel, United States, Japan, India, Germany, Argentina,
- Italy, Brazil, Poland, Philippines, Colombia, South Africa, Libya, Egypt, Hungary, Romania,
- Ukraine, Kazakhstan, Venezuela, Iran, Botswana, Namibia, Turkey, Nigeria, Tunisia, Algeria,
- Mauritius, Gabon, Lesotho, Angola, Cameroon, Kenya, Cote Divoire, Equatorial Guinea,
- Tanzania, Uganda, Mozambique, Ghana, Sudan, Zambia, Sierra Leone, Burundi, Madagascar,
Zimbabwe, Iraq, Dr Congo
Table: Bmi Business Environment Risk Ratings
- Countries: Singapore, Hong Kong, Canada, United States, Norway, Japan, Sweden,
- Australia, Germany, Israel, Austria, Taiwan, Mauritius, France, Hungary, Namibia, Poland,
- Italy, Tunisia, South Africa, Mexico, China, Romania, Turkey, Kuwait, Brazil, Botswana, Uganda,
- Ukraine, Kazakhstan, Argentina, Philippines, Ghana, Colombia, Zambia, Egypt, Iran, India,
- Madagascar, Mozambique, Tanzania, Libya, Kenya, Zimbabwe, Nigeria, Sudan, Algeria,
Venezuela, Cote Divoire, Cameroon, Dr Congo, Sierra Leone, Iraq, Angola
Table: West Africa Regional Indicators
- Period 2001 - 2009f, Nominal Gdp, US$Bn,Population, Mn, Gdp per Capita, US$, Real Gdp
- Growth, % Y-O-Y, Inflation, %, Exports, US$Bn, Imports, US$Bn, Trade Balance, US$Bn,
- Current Account Balance, US$Bn, Current Account, % of Regional Gdp
Table: East & Central Africa Regional Indicators
- Period 2001 - 2009f, Nominal Gdp, US$Bn,Population, Mn, Gdp per Capita, US$, Real Gdp
- Growth, % Y-O-Y, Inflation, %, Exports, US$Bn, Imports, US$Bn, Trade Balance, US$Bn,
Current Account Balance, US$Bn, Current Account, % of Regional Gdp
Table: Southern Africa Regional Indicators
- Period 2001 - 2009f, Nominal Gdp, US$Bn,Population, Mn, Gdp per Capita, US$, Real Gdp
- Growth, % Y-O-Y, Inflation, %, Exports, US$Bn, Imports, US$Bn, Trade Balance, US$Bn,
Current Account Balance, US$Bn, Current Account, % of Regional Gdp
Table: Sub-Saharan Africa Regional Indicators
- Period 2001 - 2009f, Nominal Gdp, US$Bn,Population, Mn, Gdp per Capita, US$, Real Gdp
- Growth, % Y-O-Y, Inflation, %, Exports, US$Bn, Imports, US$Bn, Trade Balance, US$Bn,
- Current Account Balance, US$Bn, Current Account, % of Regional Gdp