he African exchanges were unable to escape the same fate as the global financial markets and ended the fourth quarter as well as 2018 as a whole with heavy losses. The continuing trade war between the USA and China unsettled stock market investors around the world. Furthermore, the chaotic political scene in Europe created even more uncertainty in view of the dispute over debt between the EU Commission and the populist government in Rome. These various adverse factors put pressure on stock markets around the world.
Otherwise, worries over an imminent global recession and the slowdown in growth in China had an unfavourable effect on commodity prices. This went straight to the heart of the African nations as most of their economies and capital markets are heavily dependent on the growth of commodity prices.
Gold mines were seen as the only winners in the fourth quarter of 2018. The political and economic risks outlined above supported the price of gold and gold mines themselves. Our view is that the signals emanating from the Federal Reserve Bank in America (FED) for a gradual, slow increase in the base rate in 2019 will play a greater role in reinforcing the upward trend. History also teaches us that gold mines have room on the upside in the later phases of interest rate rises in the USA. We assume that the recovery of the gold mines in the final quarter of 2018 will pave the way for a bull market in 2019.
The South African stock market continued its downward trend, finishing the quarter and the year with heavy losses. At the same time, the devaluation of the South African Rand led to a deterioration in results for Euro investors. The main reasons for this negative development were the crises in Turkey and Argentina which kept international investors away from the stock markets of emerging countries. The fall in commodity prices was also highly significant for Africa’s most industrialised economy.
On the other hand, there was little excitement in Nigeria in the final quarter. International investors are still observing the political scene in this oil-rich land in view of the presidential elections in February. If the imminent elections are concluded peacefully, the West African stock market might finally reach its full potential. Stabilisation of the oil price would also play an important role. Although the price of oil was marked by great volatility in 2018, we continue to believe that Brent oil will find its equilibrium at around the 60 USD mark.
Outlook
The positive prospects for African investments remain intact despite the turbulent times. Progress in democratisation, economic reforms and rising oil and commodity prices form a good basis for positive growth in 2019. Given its high economic growth and young, growing population, international investors are sure to pay attention to the African continent.