Capital Markets

Recent moves by a number of emerging African economies to cut interest rates and improve the investment climate resulted in gains for their stock markets.

Frontier stock markets in Africa rallied in June amid rosy growth prospects, but downside risks —the eurozone crisis, China’s economic slowdown and the possible rise in oil prices — aren’t far off.

Investing in Africa is now becoming very popular, with hedge funds and tons of cash going into what used to illiquid stock markets across the continent and even the Caribbean. I saw it when I visited Nairobi, Kenya’s capital, early this year. Foreign investors are establishing accounts with local stock retail shops.

A decade ago, Goldman Sachs Asset Management Chairman Jim O’Neill coined the acronym BRICS to refer to Brazil, Russia, India, China and South Africa, at the time fast-emerging economies with firm prospects of attracting the most investment and becoming the most dominant and positive force in the world economy

Broader concerns about the market and general unease about Egypt’s direction pressured the local currency, the pound, although efforts by the caretaker government to organize elections for September boosted investor sentiment. But several blue chip stocks have yet to recover losses.

Analysts said the euro/dollar dynamics have been front and center for equity markets in Africa and the Caribbean. However, domestic matters, including plans for unveiling of 2011 budget in Nigeria, decisions on key interest rates in Kenya and the sale of state firms in several countries, will likely drive trading as 2010 draws to a close.

African and Caribbean markets struggled to shake off holiday blues in the New Year after riding higher on Christmas euphoria. TNJ‘s AfriCarib index climbed to a two-month high in December amid speculation that the global economic recovery was taking hold and growth was accelerating in Asia and the United States.