Commodity slump hurts African assets

AFRICAN assets tumbled amid the global markets rout yesterday on concern China’s economy was slowing and as commodities fell to a 16-year low.

Eight of the 10 worst performing currencies in London at 12.27pm were African, with Zambia’s kwacha falling to new lows against the dollar. Nigeria’s eurobonds soared to record highs, while Ghana’s dollar yields rose above 10.5 percent for the first time since December.

“It’s crazy right now,” Stephen Bailey-Smith, the head of Africa strategy at Standard Bank Group, said in London. “Everyone’s putting on a helmet and just hoping to get through the day. African eurobonds have been hit harder than average because they’re perceived as being more commodity-dependent.”

More than one quarter of sub-Saharan Africa’s exports go to China, according to data. Beijing’s devaluation of the yuan last week heightened concern that slowing growth will depress prices of commodities, with Brent crude falling below $45 (about R583) a barrel for the first time since March 2009.

Zambia, which derives almost 70 percent of export earnings from copper, saw its currency drop as much as 4.6 percent to 8.58 (R13.5838) per dollar before paring losses. Copper tumbled 2.4 percent to $4 935 per ton, the lowest since July 2009.

The government said it would be futile to try and stop the rout by selling dollars in the currency market.

Nigeria and Angola may be forced to abandon efforts to sustain their currencies amid the turmoil, according to London-based advisory firm Capital Economics.

Forward prices for the naira widened even as the spot price, which has been mostly flat since the start of March amid central bank curbs on trading, was unchanged at 199.05 (R12.7821) a dollar. Six-month non-deliverable forwards, which indicate traders’ expectations for the interbank price in that period, jumped 2.3 percent to 242 a dollar, the highest since March 27. – Bloomberg