African mar­kets to watch

WILL RE­WARDS CON­TINUE: 2020 MAY PRESENT A NEW SET OF RISKS

The Citizen (KZN) - - Business -

African bonds could re­main in hot de­mand if ma­jor cen­tral banks stay dovish in new year.

Global bond traders who ven­tured into Africa this year have reaped rich re­wards. The con­ti­nent’s sov­er­eign dol­lar debt has gen­er­ated to­tal re­turns of 20% since the start of 2019, more than any other re­gion in emerg­ing mar­kets.

Lo­cal bonds have also per­formed strongly. Egyp­tian pound and Nige­rian naira bonds each re­turned more than 30% in dol­lar terms.

If the world’s ma­jor cen­tral banks re­main dovish in 2020, that should sus­tain a dash for higher yields in emerg­ing mar­kets and mean that African bonds re­main in hot de­mand.

Africa is a “land of op­por­tu­nity” and could be one of the main ben­e­fi­cia­ries if the US and China make more progress on trade talks, said Bank of Amer­ica strate­gists in­clud­ing Lon­don-based David Hauner.

But in­vestors face plenty of po­ten­tial risks in 2020. South Africa could lose its last in­vest­ment-grade rat­ing, Ghana’s govern­ment might ramp up spend­ing ahead of elec­tions, Zam­bia’s debt cri­sis could spi­ral out of con­trol and Nige­ria may be forced to de­value its cur­rency. Here’s what to watch for in four key mar­kets:

Ghana

West Africa’s sec­ond-big­gest econ­omy holds gen­eral elec­tions in late 2020, with Pres­i­dent Nana Akufo-Addo prob­a­bly seek­ing a sec­ond term. The coun­try has a his­tory of fis­cal profli­gacy in the run-up to polls and in­vestors will watch whether the govern­ment is more cau­tious this time. The cedi has been un­der pres­sure. But Re­nais­sance Cap­i­tal, which rec­om­mends that clients buy Ghana’s Eurobonds, said it was now one of Africa’s most un­der­val­ued cur­ren­cies.

Nige­ria

Nige­ria’s sta­tus as one of the world’s best carry trades will prob­a­bly last as long as cen­tral bank Gov­er­nor God­win Eme­fiele keeps the naira sta­ble.

That’s be­com­ing harder, with Nige­rian for­eign re­serves hav­ing dropped 14% to $39 bil­lion (about R552 bil­lion) since July. Eme­fiele’s sig­nalled he’ll let them fall a lot fur­ther be­fore loos­en­ing his grip on the cur­rency, which barely budges. Fis­cal au­thor­i­ties, mean­while, will try to boost an econ­omy that’s been grow­ing more slowly than the pop­u­la­tion for the past five years.

South Africa

Port­fo­lio in­vestors have ex­ited South Africa en masse this year, pulling a net $10 bil­lion (about R141 bil­lion) from its stock and lo­cal-bond mar­kets, ac­cord­ing to data from the Jo­han­nes­burg Stock Ex­change.

They’ve been con­cerned by the deep­en­ing cri­sis at Eskom, which can’t ser­vice its $30 bil­lion (about R425 bil­lion) of debts with­out govern­ment sup­port, and the in­creas­ing chance that Moody’s In­vestors Ser­vice will cut South Africa’s fi­nal in­vest­ment-grade rat­ing to junk. But if Pres­i­dent Cyril Ramaphosa makes head­way in re­form­ing Eskom, in­vestors will prob­a­bly be quick to come back. Bank of Amer­ica and Gold­man Sachs Group both said its in­fla­tion-ad­justed bond yields were at­trac­tive and the cen­tral bank had room to cut in­ter­est rates.

Zam­bia

Zam­bia’s econ­omy has wors­ened this year, the lat­est prob­lems be­ing se­vere drought and elec­tric­ity out­ages. The cop­per pro­ducer’s dol­lar-bond yields trade at al­most 20%, sug­gest­ing in­vestors see a high risk of de­fault. The govern­ment still has some time on its hands – its next Eurobonds don’t ma­ture un­til Septem­ber 2022.

But an­a­lysts be­lieve it will strug­gle to avoid a re­struc­tur­ing un­less it quickly gets debt re­lief on loans from China and a bailout from the In­ter­na­tional Mon­e­tary Fund. Pres­i­dent Edgar Lungu has so far seemed re­luc­tant to ac­cept the con­di­tions that would come with a loan from the lender. – Bloomberg

Pic­ture: Bloomberg

MIXED PIC­TURE. South Africa’s econ­omy faced a myr­iad of is­sues in this year, while An­gola’s cur­rency de­clined nearly 32%, Egypt re­mains a favourite but Kenya is forecast to grow 5.8% next year.

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