Review
Although the African equity market as a whole posted gains in the third quarter of 2020, these were almost entirely cancelled out by the appreciation of the euro against local currencies. Developments on the global equity markets were strongly influenced by the coronavirus, which in some cases resulted in large differences in performance between the individual stock exchanges. The African market was no exception.
The gold mines continued their bullish trend and, as in previous quarters, increased in value. The gold price exceeded the USD 2000 mark for the first time and reached a new all-time high. Various factors supported the gold price and the gold mines in the last quarter. Firstly, the consequences and long-term effects of the corona virus on the world economy are not yet foreseeable. However, it is fairly certain that they will continue at least until 2022. It is therefore likely that the international central banks will continue their ultra-loose monetary policies to support their respective economies. In addition, the ongoing political risks arising from tensions between the US and China and uncertainty about the outcome of the US presidential election could further boost the price of gold.
The Nigerian stock market continued its upward trend in the previous quarter despite various challenges. The economy of the West African country is facing a trilemma: rising inflation, high unemployment and a shrinking gross domestic product due to falling oil prices. The Covid 19 pandemic has added to the concerns of the already troubled economy. The ambiguous exchange rate policy has deterred international investors from investing in the Nigerian market, although it could be considered one of the most favourably valued markets in the world. We are therefore fundamentally confident that the Nigerian market has excellent long-term prospects. However, this would require a rapid resolution of the country's exchange rate problems, as potential investors could otherwise switch to other emerging markets in the medium to long term, whose stock markets are also showing favourable valuations again due to Corona.
The South African stock market moved sideways in the previous quarter. South Africa introduced strict restrictions at a very early stage to contain the pandemic. However, in the face of increasing pressure on the economy, the government had to ease them, which led to a significant increase in the number of infections. It will now have to deal with both a health crisis and an economic crisis in the coming quarters.
The situation in Kenya is better, as many economic indicators of the East African country surprised positively in the previous quarter. Both the government and the International Monetary Fund have revised their economic forecasts for the country positively, predicting only slightly lower economic growth.
Outlook
We believe that the fundamentally good prospects for African investments remain intact after the crisis. The recent correction of the African stock markets in 2020 as a result of the Covid 19 pandemic represents an opportunity for long-term oriented, international investors to enter the market. The widespread use of the internet will enable a digital transformation of the continent. The considerable potential of the black continent due to the high growth rates and the constantly growing young population will certainly continue to be positively perceived by international investors.
Ahmed Helmy, Dr. Kohlhase Vermögensverwaltungsges. mbH