recent developments in african capital markets
DESCRIPTION
RECENT DEVELOPMENTS IN AFRICAN CAPITAL MARKETS. Africa Stock Exchanges Association Ghana Stock Exchange 27 – 30 October 2007. Ken Ofori-Atta Executive Chairman Databank Financial Services. By. STRUCTURE OF PRESENTATION. Recent Stock Market Developments Recent Credit Market Developments - PowerPoint PPT PresentationTRANSCRIPT
RECENT DEVELOPMENTS IN AFRICAN CAPITAL
MARKETS
Ken Ofori-AttaExecutive Chairman
Databank Financial Services
Africa Stock Exchanges AssociationGhana Stock Exchange
27 – 30 October 2007ByBy
STRUCTURE OF PRESENTATION
• Recent Stock Market Developments
•Recent Credit Market Developments
•Future Challenges
STOCK MARKET DEVELOPMENTS
INSPIRING RETURNS
• Robust economic growth, falling interest rates, strong currencies etc have spurred robust returns in African stock markets in recent years.
•Only Latin America has outperformed Africa over the past 5 years
INSPIRING RETURNS
Regional Stock Market Returns in USD (5-Yr Annualised to Q3-07)
14%
19%23%
40%
50%
0%
10%
20%
30%
40%
50%
60%
N. America Asia Europe Africa Latam
Inde
x R
etur
n
Sources: MSCI, ABRI
Regional Stock Market Returns in USD (YTD to Q3-07)
9%12%
14%
35%38%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
N. America Europe Asia Africa Latam
Inde
x R
etur
n
LIQUIDITY ON THE RISE
• Increased local private and institutional participation in stock markets and new issues have improved liquidity significantly.
•The value of trade outside South Africa has risen consistently from just US$2bn 5 years ago to US$46bn last year
•Nevertheless, liquidity remains a big risk in Africa due to small floats and the small size of many listed equities.
•The turnover ratio has also improved from an estimated 2.8% 5 years ago to 14.8% last year.
LIQUIDITY ON THE RISE
Africa (Excluding South Africa) Stock Market Turnover
$2.26$3.74
$6.80
$21.77
$45.79$43.01
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
2002 2003 2004 2005 2006 Yr to Q3-07
Billio
ns
LIQUIDITY ON THE RISEStock Market Turnover Ratio
(Africa Excluding South Africa)
2.8%3.5%
4.9%
15.3% 14.8%
7.9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
2002 2003 2004 2005 2006 2007
Tu
rno
ver
Rati
o
MARKET BREADTH AND SIZE ON THE RISE
• Markets are growing in size due to new issues and improved valuations
•Valuations have risen from single earnings multiples a few years ago to an average of 17.4x currently reflecting declining risk in Africa and higher growth prospects
Market capitalisation outside South Africa has risen from US$48bn five years ago to US$479bn currently
MARKET BREADTH AND SIZE ON THE RISE
2001 2002 2003 2004 2005 2006 2007
Africa (Excluding S.Africa)Africa
195 247344
552616
11581256
48 66 83 10967
485 479
0
200
400
600
800
1000
1200
1400
US$Billions
Stock Market Capitalisation
Africa (Excluding S.Africa)
Africa
GLOBAL APPETITE FOR AFRICAN ASSETS ON THE RISE Strong economic recovery and improving political
stability has spurred global interest in Africa’s financial markets recently
Africa (excluding South Africa and Egypt) is now being recognised as an asset class
Consequently, new public equity pan-African Fund managers are springing up alongside the traditional managers such Databank, Emerging Markets Management LLC and Blakeney Management
GLOBAL APPETITE FOR AFRICAN ASSETS ON THE RISE
Fund ManagerInception
Date Status Size (US$'m)
Frontier Africa EMM- USA Nov-93 Closed 1,166
Investec Africa Fund Investec S.AFRICA Nov-05 Open 38
Epack Investment Fund Databank-GHANA Oct-96 Open 80
Africa Opportunity Fund Imara-ZIMBABWE Jun-05 Open 122
Africa Pioneer Fund n/a Open 26
Africa Emerging Markets Fund 'A'Emerging Markets Investment Corp-
USA n/a n/a 1,150
Africa Opportunity Fund Africa Opportunity Partners-CAYMAN Jul-07 Closed 121
PME Infrastructure Fund PME Infrastructure Managers-CAYMAN Jul-07 Closed 173
Rencap Africa Fund Renaissance Asset Management-UK Jul-07 Open 350
Magna Africa Fund Charlemagne Asset Management-UK Mar-07 Open 118
Africa Value Fund Databank-GHANA In progress Open
Heart of Africa Fund New Star Asset Management-UK In progress Open
Central & East Africa Property Fund Rutley Capital-UK In progress Open
Standard Africa Equity Fund Stanlib Asset Management-S.AFRICA Jul-07 Open
Total 3,344
Old and New Pan African Funds
GLOBAL APPETITE FOR AFRICAN ASSETS ON THE RISE
Fund
Return Since Inception
(in USD)
AnnualisedReturn (In USD)
YTD Return (In USD)
Databank Epack Investment Fund (1996) 1283% 27% 37%
EMM Frontier Africa Fund (1993) 947% 19% 35%
Investec Africa Fund (2005) 76% 36% 37%
Imara Africa Opportunity Fund (2005) 74% 28% 28%
Magna Africa Fund (2007) 9% 24% 9%
•Existing Africa Funds have performed strongly and this partly explains the rising appetite for African assets
GLOBAL APPETITE FOR AFRICAN ASSETS ON THE RISE Ghana became first post HIPC country and sub-
Saharan African country outside S.A to issue a sovereign bond of US$750m on the international capital markets. Bond was oversubscribed by 660% for original issue target of US$500million
Other African countries are expected to follow suit including Kenya and Nigeria
Nigerian banks have sold GDRs on the London stock exchange successfully
Foreign appetite partly accounts for hugely successful public equity issues in Nigeria, Ghana, Uganda and Kenya
LOCAL APPETITE ON THE RISE
The strong performance of African markets has also ignited significant local interest.
Several country specific local mutual funds have sprung up in recent years in a number of countries
Local appetite has also reflected in strong participation in IPO subscriptions in the markets
CREDIT MARKETS
YIELD CURVES HAVE BEEN EXTENDED Yield curves in several countries have extended in
recent years following improved economic stability and the desire to create benchmarks for private sector issuers
This has laid some foundation for the private sector to access long-term debt capital
With the exception of Nigeria, the private sector has not taken enough advantage of the extended yield curves to access debt capital markets
YIELD CURVES HAVE BEEN EXTENDED Debt capital markets have generally not been
liquid in Africa probably due to the absence of local credit rating, lack of trading expertise and poor marketing habits
NEW PAYMENT SYSTEMS ARE EMERGING Africa is waking up to using new technologies
for transaction processing
Mobile phone banking is growing fast in several African countries for making payments, deposits, checking balances, transfers etc
Some countries are implementing switching technologies to allow for e-card transactions
ACCESS TO CREDIT ON THE RISE
Micro Finance banks are springing up and providing access to small businesses
Some SSA countries have started implementing credit referencing platforms which will eventually transform credit from being collateralised-based to history-based
Banks have started issuing credits cards for the first time in some SSA countries such as Ghana and Nigeria and this is promising to change the entire consumer culture
BANKS ARE IN BETTER SHAPE
Macroeconomic developments and better governance structures have improved the quality of banks balance sheets across Africa
Nigeria style reforms are rubbing off other countries. Higher minimum capital requirements are being implemented or about to be implemented in several SSA countries
Several banks are transforming themselves into regional institutions, especially the Nigerian banks
CHALLENGES AHEAD
CHALLENGES
• The need for national social security funds to become Pan-African institutional investors. This will require regulatory changes in several countries but will give a big boost to markets
•The need to create a strong Africa domiciled investment banking industry to ensure rewards stay in Africa. E.g National pension funds outsourcing investment management services to Africa domiciled fund managers
•How do we harness new technologies such as the mobile phone to improve access to capital market products to ordinary people?
CHALLENGES
• How do we create a true Pan African Capital market?
•Integration, cross-border listing, cross border electronic trading, African Depository Receipts?
• Harmonise rules across the continent?