‘Exceptional time’ to invest in African stock exchanges

Foreign investors may have pulled back from many African exchanges, but shares are "stupidly cheap", says Investec's head of frontier markets.


Image : Emmanuel Croset /AFP

“It’s an exceptional time to invest into African stock exchanges,” said Andrew Schultz, head of frontier markets at Investec Securities, at a conference in London on 10 October.

“Shares are stupidly cheap,” he said. “There are very good companies with strong management teams, who have proved they are very good at making the most of a tough situation.”

Schultz was speaking on a panel during “AFSIC 2022 – Investing in Africa”, a giant annual conference focused on investment flows into Africa bringing together investors, fund managers and entrepreneurs from Africa, the UK, Europe and the US.

Schultz said that, over the last 10 years, leading African companies outside South Africa have doubled their earnings but fallen from a valuation (PE ratio) of 13 times earnings to only 10 times earnings.

‘Good opportunity’ for debt and equity market

Speaking on the same panel, Brenton Lalu, Africa specialist at Africa’s largest asset manager, the Public Investment Corporation, which manages South Africa’s R2.5trn ($140bn) Government Employees Pension Fund, said foreign investors had pulled back from many of the African exchanges, including Nigeria.

Contrarily, Samuel Mokorosi, head of deals and origination for the Johannesburg Stock Exchange, said: “In Q1 2022, with war in Ukraine, foreign interest was coming into the market. However, volatile investment funds pulled out in Q2 and Q3 as inflation started to take precedence in the US, pushing up the dollar. It’s a good opportunity for the equity and debt market.”

Thapelo Tsheole, CEO of the Botswana Stock Exchange, said the bourse had started preparations to join the MSCI Frontier Markets Index. This would make selected shares interesting to international institutions who invest according to the index.

Tsheole highlighted the African Exchanges Linkage Project, covering seven leading African securities exchanges linked in the first phase, with the Botswana and Ghana exchanges signed up to join in the next phase. This enables stockbrokers to send a client’s orders to a host stockbroker in another stock market for execution in that market.

He said Southern African pension funds, including in Botswana, have assets considerably bigger than the size of the local market and it is good to open avenues for them to invest in growth opportunities in other markets.

Lalu said that enabling investments in infrastructure is key to future growth. “Once we get infrastructure right, we can enable industrialisation and command our own engine for development. Once industrialised, Africa is ready to unlock the full potential of intra-regional trade.”

In recent years many of the markets had seen fewer listings, and in South Africa more companies had de-listed their shares from the trading board than listed. Mokorosi said the JSE sees good appetite for infrastructure, green, social and sustainability-linked bonds, of which Netcare listed the first in March 2022.

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