2014: Another landmark year for African equities?

With foreign investment driving share prices and commendable performance from a number of companies, African markets enjoyed a bumper year in 2013. Nigerian banks weathered regulatory storms and grew their books, while a number of food and beverage companies upped their output volumes and telecoms organisations improved their earnings mixes. "While we expect these trends to persist in 2014, foreign participation in the continent’s markets may wane in the face of a realignment of monetary policy in (notably) the US,” says Fungai Tarirah, head of Africa investments at Momentum Asset Management. "A reduction in the US Federal Reserve’s quantitative easing programme will also limit the amount of cheap money available for risky asset investments and turn Western investors’ attention back home where economies and business prospects are improving.”

With some profit taking having taken place early in the year, market momentum is expected to slow further until companies start their 2013/2014 reporting, at which stage earnings quality can be reassessed and portfolios repositioned accordingly. In some instances, valuations appear rather extended relative to historical trends and so certain businesses would have to table some impressive numbers to justify their ratings.

Possible detractors from corporate earnings would be increasing country risk ratings due to terrorism, violence and civil unrest, intermittent power supply and lacklustre government activity in some countries, which does not spur spending.

Despite all this, however, a number of African stocks remain attractive and, with nominal GDP growing at rates of c19% in Nigeria, c10% in Kenya and c6% in Zimbabwe, certain regions do seem to offer more return prospects than the South African market. "Although liquidity remains a key issue on the continent, this, in my opinion, relates to how investors choose to invest their money. If investment horizons are extended to meet the true investment objectives of most portfolios, a lot more room becomes available for the inclusion of propositions such as Africa in a portfolio mix,” concludes Tarirah.