The dispute between US President Donald Trump and the Chinese giant Huawei escalated the trade war between the two countries. In addition, the attacks on oil tankers and the escalation of the Iran conflict caused increased geopolitical risks and more uncertainty in the Middle East. The world's central banks have however allowed generous and expansive monetary policies to prevent the serious effects of these risks upon the real economy. The President of the European Central Bank, Mario Draghi, and his American counterpart have indicated a cut in the key interest rate this year.
The biggest beneficiaries of the aforementioned political crises were, above all, gold mines and the gold exchange rate, which are regarded as safe haven investments. This precious metal, which does not pay any interest, also profited strongly from the loosened global monetary policy. As a result, these supporting factors drove gold prices to their highest level since 2013. We consider the relationship between gold mines and gold prices to be moderate and expect gold mines to have plenty of room to rise during the next two quarters.
The South African stock market continued its upward trend in the last quarter and made strong gains. The national elections in the country produced the expected result, with the ruling African National Congress party holding power with an absolute majority. However, its share of less than 60% of the popular vote gave South Africa's main party its worst result since the end of the apartheid era. This election result poses a real challenge for the South African government, which needs to introduce strong reforms in order to kickstart the resource-rich country again.
By contrast, the Nigerian stock market slipped into the red in the last quarter. The outcome of the presidential elections last February and the re-election of the incumbent president did nothing to enthuse international investors demanding a change of course in the oil-rich country. We believe that a recovery in the oil price in the coming months is highly likely to help the West African financial market. The Kenyan capital market followed the downward trend of the Nigerian Stock Exchange and came under significant pressure without any market moving news.
Outlook
The positive outlook for African investments remains intact. Progress in the development of democracy, economic reforms and recovering oil and commodity prices form a good basis for a positive trend. Alongside this, the widespread use of the Internet will facilitate the digital transformation of the continent. International investors will certainly take into account the high economic growth rates and the young, growing population of the world’s second largest continent.