Frontier market stocks rose in December 2009 after China raised its economic growth forecast and oil prices climbed, capping six months of recovery after a plunge in 2008 through early 2009. The outlook for 2010 is a little brighter, with African markets revving up while Caribbean markets remain flat until late in the year or early 2011.
“There’s going to be a lack of liquidity in the [Caribbean] region until the economy recovers fully in 2011,” says analyst Omar Kennedy at Sagicor Asset Management, in St. Michael, Barbados. “In the short term, governments, especially in Barbados, Trinidad and Tobago and Jamaica, are going to be giving incentives to foreign investors who are keen on investing here.”
The Caribbean market was seriously affected by the recession in the United States. Jamaica’s bourse was flat in the three months to December 2009 and the Barbadian and Trinidadian marts fell 6 percent to 7 percent. Tourism saw a dramatic drop earlier on, but holiday bookings from Europe and Asia picked up when the U.S. dollar weakened.
Elsewhere, South Africa’s key stock index has carried over gains from Dec. 31’s three-year high, boosted by higher metal prices and mining stocks. The rand posted its biggest annual gain since 2003 as record-low interest rates encouraged purchases of high-yield assets and as commodity prices, especially for gold and platinum, rose on signs of a global economic recovery. The JSE All Share index gained 11 percent in the fourth quarter and is seen rising more than 10 percent in the first quarter of 2010.
But there are red flags. South African Reserve Bank may have to cut its main interest rate to weaken the currency and boost the economy. A late-December report showed South African credit contracted in November as job losses prompted consumers to cut spending and banks reduced lending, illustrating “the collapse in business and consumer confidence.”
In Egypt, shares fell sharply in recent weeks because of investor concern that the country’s biggest phone company may use a capital increase to pay taxes or debt. The benchmark EGX 30 Index lost 2 percent last month.
Kenya’s All-Share index closed the year at a four-month high. Inflation rose 5.3 percent in December as the cost of drinks and tobacco increased. It may dip in February, when the country’s statistics office plans to cut the weighting of food in the basket used to determine price growth to 40 percent from about 50 percent. The World Bank reports hopeful signs on Kenya’s economic recovery, saying, “the fiscal position remains strong, the financial sector is robust, the external sector is in balance, and inflation has declined below 10 percent.” Kenya’s service sector grew 4.5 percent in 2009, powered by a 28 percent leap in tourism. Less encouraging is Kenya’s projected 2.5 percent growth rate in 2009, which fails to keep pace with its population growth. For 2010, the World Bank forecasts 3.5 percent GDP growth.