Johannesburg - African stocks are losing more money for investors than their frontier-market peers, as Kenyan and Nigerian equities languish in bear markets on concern slower economic growth will dent corporate earnings.
The sub-Saharan nations led declines over the past week among 25 countries on the MSCI Frontier Markets Index, which fell 4.2 percent through Wednesday amid a rout in global assets spurred by evidence that growth in China’s economy is slowing. Kenyan equities, including Vodafone’s Nairobi-based unit Safaricom and Diageo’s East African Breweries, dropped an average 7.8 percent, while securities traded in Lagos, such as PZ Cussons Nigeria and Union Bank Nigeria, slid 6.6 percent.
Nigeria, Africa’s largest economy and oil producer, is struggling to cope with oil prices near six-year lows, while a delay by President Muhammadu Buhari in naming his cabinet since taking power in May is deterring investors seeking direction on economic policy. In Kenya, growth is slowing as the country’s $1 billion-a-year tourism industry contracts following a spate of attacks by Islamist militants and a drought cuts tea crops, hurting the East African nation’s largest sources of foreign exchange.
“When you look at African countries and their economies this year, they’re under a lot of pressure because of very low commodity prices,” Isaac Matshego, an economist at Nedbank Group in Johannesburg, said by phone on Thursday. “It’s expected generally that economic growth is going to be weak and in a weak growth environment you’ll have corporate growth earnings under pressure too.”
The MSCI EFM Africa ex-South Africa Index dropped 8.7 percent this month through Thursday, compared with a 7 percent decrease in the MSCI Frontier Markets Index. Stocks in Egypt have been the biggest losers, followed by Kenya, Mauritius, Morocco and Nigeria. Egypt’s EGX 30 Index is down 21 percent this year, the fourth-biggest decrease globally, as oil tumbled below $40 a barrel.
On a monthly basis, the MSCI Frontier Market index is trading at its highest price relative to the African measure in almost eight years. Vietnamese stocks are leading gains this week, with PetroVietnam Drilling and Well Services JSC, the country’s biggest listed oilfield services provider, climbing 7 percent and Bank for Investment and Development of Vietnam jumping 6.6 percent. Argentina’s Grupo Financiero Galicia SA advanced 5.8 percent.
Kenyan equities have slid for 12 straight days for their longest streak of losses since December 2013, while Nigerian shares are down 21 percent since their April 2 peak, meeting the common definition of a bear market.
Top picks
While there is no near-term catalyst to drive equities higher, it might be time for investors with five-year views to buy selected Nigerian and Kenyan stocks, according to Ali Khalpey, head of equities at Exotix Partners in London. His top picks include Guaranty Trust Bank, Zenith Bank, Equity Group Holdings, Kenya Commercial Bank, Safaricom and Nigerian Breweries.
“You’re getting these at five-, six- or seven-year lows in terms of multiples,” he said.
The Nigerian Stock Exchange All Share Index rose 0.3 percent to 28 221.75 by the close on Thursday, ending a three- day losing streak. The FTSE NSE Kenya 25 Index slipped 1.9 percent to 174.92, its lowest level since March 2014, as 19 stocks in the gauge fell.
The 35-member Ghana Stock Exchange Composite Index, which doesn’t have any of its stocks included in the MSCI EFM Africa gauge, has declined more than 10 percent since its June 9 high, entering a so-called correction. The cedi has weakened 23 percent this year as President John Dramani Mahama’s administration contends with the slowest economic expansion in 20 years and a power shortage.
Ghana stocks may rebound as dollar inflows from a planned Eurobond sale and cocoa loans boost the cedi in the final quarter of the year, Alex Boahen, an equity analyst at Databank Group Ltd., an Accra-based investment bank and money manager with more than 1 billion cedis ($240 million) in assets, said by phone. He is recommending clients buy oil-marketing companies, such as Ghana Oil and Total Petroleum Ghana, a unit of Total, after the government stopped setting prices.
BLOOMBERG