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 debt crisis in Europe, worries about a possible double-dip recession in the U.S. and a slowdown in Chinese growth have trimmed market confidence worldwide, including in Africa and the Caribbean.
After the rally of 2009, uncertainties for the next nine months are now curbing gains for African and Caribbean markets. There are two opposing worldviews. One holds that the economic recovery underway is the start of a bull market. The other predicts a bearish stretch because the markets are overbought and the recovery is fragile.
Major stock indices in Africa and the Caribbean are riding an upturn in corporate earnings and on expectations for higher economic growth to regain the investment capital ceded to the bond market in last year’s recession.
African markets will benefit from millions of visitors heading to the 2010 FIFA World Cup in South Africa, which starts June 11. Tourism, transportation, food services and banking are among the sectors likely to post gains.
With developed markets still recovering from the Great Recession and emerging markets developing bubbles that may soon burst, investors may have to look to the frontier markets in Africa and the Caribbean to diversify their portfolios.
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.
Investing in developing markets is not for the fainthearted. So it should come as no surprise that Afro-Caribbean equities took a step back from mid-June to mid-July after modest gains in the second quarter.
Poor nations offer interesting opportunities for investors seeking tomorrow’s emerging markets. Several exchange-traded fund managers are already investing in Africa and the Caribbean, taking advantage of opportunities in frontier markets that are showing promise.
As risk appetite swells, investors are moving money to the smallest, most volatile markets in Africa and the Caribbean, lured by a growing sense that a recovery for the global economy is under way and investment in these frontier markets will reap hefty returns.