A Rough Patch
After the year’s early gains, emerging and frontier market investors have hit a rough patch. Stocks have been falling across Africa since political turmoil that started in January in Tunisia escalated into a full-blown revolution in February, pushing investors away from risky emerging and frontier markets and back to developed economies. The flight to safety quickened when major rating agencies downgraded emerging markets following anti-government protests and the ouster of Egyptian President Hosni Mubarak on Feb. 11. The situation was initially expected to get better but has since gotten worse after JPMorgan Chase & Co. reduced its outlook for emerging equity gains amid widespread protests across North Africa. There’s a great deal of fear about what would happen next and to whom. That’s causing unnecessary uncertainties that investors typically don’t like.
Egypt’s main bourse dropped about 20 percent due to the violence and its impact on a whole lot of sectors, including tourism and construction that were booming at the start of the year. In South Africa, the rand has lost some of its allure as mining companies seek to quell rumors that they would be taken over by the government amid calls to do so by the radical youth league in the ruling ANC Party. Nationalization talk in South Africa has been revived by the recent events in Egypt. One reason why the issue continues to fester is that the government hasn’t completely ruled it out, and that’s fueling investor jitters.
In Côte d’Ivoire, the country’s second-biggest banking operation, BNP Paribas, shut down its operations in mid-February amid security concerns. The world’s top coca exporter has been in turmoil since a disputed Nov. 28 presidential election. In Zimbabwe, inflation jumped 3.3 percent in January on the back of rising food and energy prices, continuing a trend of hyperinflation that has been exacerbated by political instability there. The economy shows signs of recovery, but continuing violence against opposition members ahead of elections and uncertainty caused by President Robert Mugabe’s nationalization program are keeping investors away. Investors are also uneasy about Uganda and Nigeria ahead of upcoming presidential elections.
However, despite the general unease with emerging and frontier markets, stable African countries continue to attract investors and there’s a great deal of optimism about investing in the peaceful frontier markets in the Caribbean. Investment in countries such as Jamaica, Barbados and Trinidad and Tobago is fueled by the U.S. economic recovery and investor capital flowing back to North America from the turbulence that’s engulfing emerging markets in Africa and the Middle East.