Van Eck Global, a money management firm in New York City, launched its African Index ETF on July 10 to give U.S. investors an opportunity to invest directly in African equity markets.
The new ETF tracks the performance of the Dow Jones Africa Titans 50 Index, a pan-African index that measures the stock performance of 50 companies that are headquartered in or generate the majority of their revenues in Africa.
Since its creation, the index has lost about 40 percent of its value, thanks to the financial crisis that sent economies around the world on a downward spiral.
Most of the stock losses came in October, when the credit market froze and forced big banks to go out of business. As a result, investors liquidated not only from the banks, but also from commodity-based companies that dominate stock markets in Africa and the Caribbean.
For example, African tea prices have plunged the most since March 2006 as the global financial crisis deterred buyers and rainfall in places like Kenya boosted supplies.
“This is in response to the global credit crunch,” David Mwashumbe, a spokesman for Africa Tea, said in an interview from Mombasa. “The buying countries are saying that tea is no longer a priority, they are cash strapped.”
Losses in the Caribbean and South America were also significant, although the exact data wasn’t immediately available, analysts said. Bank, agricultural and energy stocks fell in Barbados, Jamaica, and Trinidad & Tobago as investors moved to liquidate their portfolios to limit losses.
“There’s nowhere to hide,” says Michael Goldberg, who handles marketing for Van Eck Global. “The global credit crisis has made the investment environment a lot tougher. It’s everywhere including Latin America and in the Caribbean.”
Analysts say emerging-market stocks, especially in Africa and in the Caribbean, fell to the lowest level in October and bonds retreated as concern grew that the global economic slump will erode earnings for banks, commodities and raw-material producers.
Van Eck Global’s index spans 11 African countries, including Egypt, Ghana, Morocco, Nigeria, South Africa and Zambia. The largest country weightings are Nigeria, South Africa and Egypt, and the largest sector weightings are banking, basic resources, and oil and gas. The slump in commodity prices has especially hurt those stocks.
“Africa may be turning a corner due to debt reduction, strong commodity prices and better economic management,” says Jan F. van Eck, principal at Van Eck Global. “However, there are considerable risks and investors should take a long-term perspective.”