In Nigeria, the strong oil price created a buoyant mood. The sanctions imposed against Iran, together with falling reserves, drove per barrel prices to their highest level since late 2014. This development increased local government confidence that West Africa’s biggest economy will grow by 3.5% in 2018. It was particularly pleasing for incumbent President Buhari, who announced his candidacy in the February 2019 presidential elections. We assume that the Nigerian equity market in the next two quarters will be largely influenced by the country's political circumstances.
The South African equity market moved upwards in local currency terms, though the sharp fall in value of the South African rand massively disadvantaged investors from the euro area. The main reason for the national currency's weak performance was the negative growth of gross domestic product (GDP), which declined 2.2% in the first quarter of 2018 compared with the previous quarter. This contraction was the weakest economic performance for nine years in the raw material-rich country.
Kenya was generally quiet in the last quarter. The political settlement between the current president and the leader of the opposition at the beginning of the year had a calming effect on the political scene and laid the groundwork for a consolidation of power over the next four years. Moreover, the financial sector is hoping for the repeal of the controversial law that has imposed an interest rate cap for the last two years. The acknowledgement by a government representative that this cap has reduced lending operations by Kenyan banks sends a strong signal that the law could be repealed in the next few months.
The gold price has been under pressure for the last three months. The main reasons for this have clearly been the strength of the American economy and the increase in the key US interest rate. However, the gold mines proved very robust against this downward trend, due to their low valuations at the beginning of the last quarter. We continue to believe that the yellow precious metal represents a good hedge against geopolitical risks worldwide. Should President Trump lead the world into a major trade war, we believe the gold sector still has a great deal of upside potential.
Qutlook
We take an optimistic view of African equity markets in the next few months. Progress in democratisation, economic reforms and rising oil and commodity prices form a good basis for positive development. International investors will doubtless also take these markets into consideration.