2015 Sub-Saharan Africa’s Equity Market Outlook

Equity Market overview
In 2014, Sub Saharan African (SSA) equity market performance was mixed. The East African markets generally performed well, led by Tanzania (+22.7%), Uganda (+14.1%) and Kenya (+13.3%). Rwanda declined by 4.5%. Similarly, most markets were up in Southern Africa, with the exception of Zimbabwe which declined 19.5%. In West Africa, Nigeria and Ghana performed poorly in 2014. The Ghanaian equity market was up in local currency but declined 31.9% on currency devaluation. The Nigerian market dropped by 27.9%, on fears of currency devaluation amid falling oil prices.

GDP growth outlook remains strong
According to the IMF World Economic Outlook, Sub Saharan African (SSA) economies are expected to grow by 4.9% in 2015, ahead of many other emerging markets and developing economies. The economic environment is supported by benign inflation and lower interest rates for most of the region. The pace of infrastructural development (roads and power), a buoyant services sector and an improving value chain in traditional sectors such as agriculture should provide additional momentum.

In 2014, a number of countries including Kenya, Nigeria, Uganda and Tanzania rebased their national accounts. The size of the economies was restated upwards, revealing the economies are more diversified than previously thought. With more reliable statistics at hand, we anticipate that better policy decisions and resource allocation will lead to job creation. Other SSA countries are likely to undertake similar statistical revisions in future.

In West Africa, Nigeria will hold its elections in Q1 2015. The incoming government will need to improve fiscal discipline while still supporting some of the positive initiatives taken by the incumbents. Although we expect short-term pain in Nigeria due to falling oil prices, we remain positive on the medium and long-term prospects. We believe that the oil price weakness provides a good opportunity to diversify away from oil dependence. Ghana suffered macro-economic imbalances for most of 2014. However, a possible bailout by the International Monetary Fund is expected later this year. This should stabilize the economy and enforce tighter fiscal discipline.

In East Africa, infrastructure spend is the key theme. Energy and transport received significant budgetary allocations for the 2014/15 year. If implemented well, these projects will help reduce the cost of business. The push for regional integration through the East African Community will also remain a key target for policy makers.

To the South, we expect Foreign Direct Investment (FDI) and consumption to drive growth. In Zimbabwe, liquidity remains a concern and bold policy reforms are necessary to turn around the economy. Botswana is likely to continue growing steadily on the back of growth in downstream manufacturing. Zambian elections are to be held in January, following the death of President Sata last October. We expect clarity on policy direction after the election.

There are numerous risks that could affect the outlook in SSA. Global growth remains a concern, especially due to Africa’s growing trade ties with the rest of the world. Softer commodity prices may adversely affect revenues of resource rich exporting countries. Fiscal vulnerabilities have also increased in recent years. However, policy makers are increasingly sophisticated and we believe they will proactively cushion their economies from externalities.

Equity Market Outlook
We expect equity markets in the region to be broadly supported. Strong growth, pro-business policies and a benign macro environment (supported by lower oil prices) should have a positive impact on both consumption and business spending. This in turn should sustain growth in corporate earnings. The current weakness in the Nigerian market is likely to persist in the short term until elections are over. However, this provides an opportunity to invest in this high potential country at attractive valuations.