Many private investors shy away from investing in the African stock market. The market knowledge is too little, and the fear of political crises is too stubborn. Nevertheless, anyone who dares to do so will find above-average opportunities for returns.
When you think of Africa, you usually first think of war, hunger and poverty. Most equity investors, therefore, give the continent a wide berth. But the chances are immense even if there are problems such as corruption or political unrest.
Let’s not forget that one of the five fastest-growing economies is in Africa. Furthermore, consumer spending is soaring, thanks to a growing young population. Targeted investments in this growth market can be promising.
Africa is extremely heterogeneous
From an economic point of view, the continent is highly heterogeneous. In some countries, such as Gabon, Eswatini, or Seychelles, gross domestic product (GDP) grew by more than one percent in 2021. At the same time, some growth champions are located on the continent: the GDP of Botswana and Kenya increased by more than seven percent in 2021. On the other hand, Libya still grew by 131%. For comparison: Germany’s GDP grew by 2.9 percent in 2021, i.e., by less than half.
Most investors who have already dealt with investments in the African stock market concentrate on the high-flyer, South Africa. The state is the most developed economic area on the continent. Accordingly, the South African stock exchange Johannesburg Stock Exchange (JSE) is one of the most important in the southern hemisphere and one of the twenty most significant in the world. The leading FTSE/JSE Top 40 Index consists of the 40 most extensive stocks on the Johannesburg Stock Exchange by market capitalization.
The most significant stock listed there is the media group Naspers. The company was an early investor in Chinese internet giant Tencent and now invests in emerging startups worldwide. As a result, the stock has gained nearly 8.57 percent over the year. Understandably, South Africa should continue to dominate from an investor perspective when assessing opportunities in Africa. At the same time, however, the experts also emphasize that other countries in the region still offer a great deal of untapped potential in the long term.
One of these untapped stock exchanges is Kenya. The country on the east coast is an important trading hub between the African continent and its eastern partners. According to the investment house Morgan Stanley, Kenya is one of the so-called frontier markets. These often have high growth rates and typically rich deposits of raw materials. Another characteristic feature is a relatively young population and a growing middle class, which drives demand for consumer and luxury goods. There are currently 66 companies listed on the Nairobi Securities Exchange in the capital, Nairobi. That makes it one of the largest on the continent.
Great opportunities but also significant risks
A similarly promising country is Nigeria. Asset manager Fidelity is extensively involved in Africa’s most populous country. According to their own statements, the reason for this is that the Nigerian stock market acts independently of the global markets. This can have a positive effect on the overall risk of a portfolio. The low-cost Global X MSCI Nigeria ETF index fund, for example, allows for broad investment in this market.
As usual, high returns are accompanied by high risks. Various factors speak for the sustainable success of the presented countries. But while economies like Germany are characterized by small but stable growth, a lot can change quickly in Africa. Unrest, terror, and police violence are common in Kenya and Nigeria. This is also reflected in the stock markets. But for those who are aware of the risks and believe in growth markets, the African capital market is an exciting addition.
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