Finding Hope in African Markets: A Portfolio Manager’s Perspective

The economic situation in various African countries continues to present difficulties, largely due to inflation risks stemming from high food and energy prices. These risks are compounded by factors such as slow economic growth, budget deficits, balance of payment concerns, currency weakness, and social risks.

Nigeria, in particular, has witnessed positive developments under the leadership of President Bola Tinubu. However, additional measures and policy adjustments are necessary to fully rectify the existing irregularities in the Nigerian financial system. Although some restrictions on the foreign exchange market have been relaxed, there is still a backlog of foreign currency repatriation that needs to be addressed, and market liquidity needs to be restored to regain investor confidence.

The recent devaluation of the naira has led to increased inflation, posing a challenge for the Central Bank of Nigeria (CBN) to respond with appropriate monetary measures. The appointment of Dr Olayemi Cardoso as the new CBN governor is a step in the right direction, but further efforts are required to stabilize the financial system. Despite these challenges, Nigerian banks such as Guaranty Trust Bank, Zenith Bank, and Stanbic IBTC Bank have reported higher profits due to significant foreign exchange gains.

In Egypt, the Eastern Company has performed well, with the government’s sale of a stake to a UAE investment firm resulting in a substantial increase in the company’s value. In Zimbabwe, Zimplats, a mining company, has encountered challenges but is in a relatively better position compared to other PGM miners due to its strong balance sheet and strategic investments.

In conclusion, while there are macroeconomic and specific risks across African markets, there are grounds for cautious optimism. The current valuations and sentiment in these markets could pave the way for promising future performance. Despite prevailing challenges, there are opportunities for growth and value creation in these markets.

Source: How We Made It In Africa