NESTOR Africa - Quarterly Report 4/2019

The African stock market moved sideways in the fourth quarter of 2019 but ended the year in pleasantly positive territory (in euro terms).

It thus followed the upward trend of the global capital markets and generated substantial profits in 2019. The expansive monetary policy of the US and European central banks calmed investors worldwide and supported the global financial markets. The gold price benefited from the ongoing political risks, reaching its highest level since 2013.

The Kenyan stock market rose strongly in the last quarter of 2019. The parliament of the East African country has completely abolished the controversial law, which for three years has imposed an upper limit on lending rates. This step was welcomed by the International Monetary Fund and international investors. They again entered Kenyan banks and drove up prices. Over the last decade, the Kenyan stock market has been the best performing (in USD) in Sub-Saharan Africa. We firmly believe that the East African region is promising in the long term. Countries such as Kenya and Rwanda have invested massively in promising technologies in recent years and the entire region should reap the rewards of these investments in the coming years.

Nigeria was rather quiet in the last quarter.

The South African stock market also continued its upward trend, despite several negative reports, and ended the quarter with a strong plus (in euro). The main reason for this was the excellent performance of precious metals equities (platinum and gold mines), which boosted the entire market. The rating agency Moody’s has lowered the outlook for the creditworthiness of the South African country's government bonds to negative. If the economic situation does not improve in the next few quarters, South Africa could lose its investment grade status in 2020. The dramatic power cuts of recent months threatened to plunge the South African nation into recession.

Gold mine stocks rose for the fifth consecutive quarter. The gold price itself experienced its biggest annual rise since 2010, breaking through the USD 1600 mark for the first time since 2013. The outlook for gold and gold mines remains unchanged; the political risk due to the US presidential election in November 2020 remains very high, as the incumbent President Trump will certainly try to live up to his reputation as a strong man. The confrontations with Iran at the beginning of 2020 are clear evidence of this. This factor and the loose monetary policy of the central banks should continue to support the gold price in 2020. We are convinced that the gold mines still have plenty of room for improvement, even if the gold price remains at the same level.

Outlook

The good prospects for African investments remain intact. Progress in democratic development, economic reforms and recovering oil and commodity prices form a good basis for positive development in the coming decades. At the same time, 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 noted by international investors.