Ghana Stocks Beat the World

The investment guru George Soros is renowned to have once said that Africa is not even on the radar screen of global portfolio investors. Probably, it is truer to say that African stock markets are simply not even thought of by the major western media houses such as CNN, BBC, Bloomberg etc.

At the close of last year, the western media houses reported the inspiring recovery in the markets in America, Europe and Asia with a lot of exuberance without even a line talking about Africa. BBC even went ahead to report that Thailand was the best performing market in the world with an index return of 128% in US dollar terms without realizing that some markets in Africa have outperformed that of Thailand and several of the major markets. The marginalization of the financial markets in Africa in the western media is probably understandable given that the markets in Africa are relatively small and shallow. Nevertheless, it is important to observe that African stock markets on average have outperformed the markets elsewhere in 2002 and 2003.

African markets posted an average index return of 37% in 2003 in US dollar terms. If Zimbabwe is excluded, average returns on African stocks reached 44% in 2003. This compares favourably with a return of 30% by the MSCI global index, 32% in Europe 26% in the US (S&P) and 36% in Japan (Nikkei). Last year, Ghana was the best performing stock market in the world out of 61 markets surveyed. The Ghana stock market reported an index return of 144% in US dollar terms and 157% in local currency terms. Out of 25 listed equities on the Ghana bourse with a total market capitalization of US$1.4 billion, only one recorded a negative return while 13 stocks registered gains in excess of 100%. Over the two year period 2002-2003, Ghana still ranked tops in the world with a compounded index return in US dollar terms of 256%. The bullishness of the market in Ghana over the period was underpinned by impressive corporate results, cheap valuations and a consistently improving macroeconomic environment that has reflected in relative exchange rate stability, improved foreign reserves, declining inflation, falling interest rates and an inspiring sovereign credit rating of B+.

Uganda, Kenya, Egypt, Nigeria and Mauritius were other very strong performers with returns in US dollar terms exceeding 50% last year.

Kenya stocks are attracting investor votes due to a smooth political transition 2 years ago, a commitment to macroeconomic reforms, significant steps taken by the new government in tackling corruption and the resumption of foreign aid that have raised hopes for the economy’s prospects. Bullish crude oil prices, exchange and interest rate stability and cheap valuations have also helped Nigerian stocks to be in the good books of investors.

Zimbabwe for the second year in a row was the worst performing market in US dollar terms not only in Africa but also in the entire world. While index returns in Zimbabwean dollars was a strong 12% in 2003 as a result of negative real interest rates and the relative unattractiveness of alternative investment instruments, index returns in US dollar terms in Zimbabwe was a disappointing -73% as the local currency depreciated sharply while inflation reached over 500% due to the economic problems elicited by President Mugabe’s controversial land reform programme.

In broad terms, stock market returns in Africa have been particularly helped by a weak US dollar for three main reasons. First, the weakness of the dollar implies a relative fall in the exchange rate risk for foreign investors in African stock markets

Stock Market Returns in USD terms in 2003 (%)

Ghana 144

Uganda 140

Kenya 112

Namibia 60

Nigeria 59

Mauritius 55

Morocco 44

South Africa 42

Zambia 38

Ivory Coast 28

Swaziland 21

Botswana 21

Tunisia 12

Algeria 2

Egypt -6

Tanzania -8

Malawi -18

Zimbabwe -73

Top 10 Performing Stock Markets 2003 in USD terms

Ghana 144

Brazil 141

Uganda 140

Venezuela 140

Argentina 135

Thailand 128

Kenya 112

Turkey 104

India 80

Peru 78