January 17, 2020/United Capital Report
Over 2019, equities in global, emerging and frontier markets trended upwards, on the back of the global easing narratives. However, most equities in the SSA region underperformed their EM and FM peers, as FPIs piled into high yielding EM debt instruments. Of the six exchanges under our watch, only the South African and Kenyan exchange closed 2019 in the positive territory.
The performance in Kenya was buoyed by strong economic growth in H1-19 and the possibility for the removal of interest rate caps, that have constrained banking sector earnings. Meanwhile, for South Africa, it was a tale of two halves as the continued re-assurance by the President to commit to reforms, provided investors with some fundamental justifications for buying equities in H1-19. However, the continued drag to commit to those reforms spurred some capital reversals in H2-19. On the other hand, the benchmark indices in Ghana, Nigeria, BRVM bloc and Mauritius all closed 2019 in the negative territory, largely due to risk-off sentiments by foreign investors and the lack of pro-market reforms.
In 2020, we believe the outlook for EM and FM equities will remain positive, on the back of expected dovish global monetary policies. Specifically, for SSA, we expect interest in equities to remain fundamentally driven, as the heavy-weight market movers – FPIs – continue to look for bold economic reforms as fundamental reasons for buying equities. Thus, in the absence of any new reforms in 2020, we expect sentiments to remain weak.
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