During the third quarter most African markets joined the global equity market rally. African currencies were also broadly stronger with the exception of the Nigerian Naira, which weakened by 12%. The top performing markets were Egypt +22%, Morocco +8% and Mauritius +7% while Kenya and Nigeria were down -1% and -11% respectively. Most markets finished the quarter on a strong note hinting at a possible reversal of the bearish trend in African markets, confirmed by our technical models that are looking increasingly bullish.
One event that had a major impact on the markets was Kenya’s decision to place a ceiling on banks’ interest rates and a floor on deposit rates. It was a devastating blow to the market causing the bank sector to plummet by around 25% in just a couple of days. The decision was a political move in view of the next general election around the corner, but it was a costly one for investors as well as the local economy which will suffer a liquidity squeeze.
Another event that impacted performance of the market is the flow of foreign funds. In the search of yield, flows were re-routed from developed markets to emerging market. The trickle-down effect into frontier markets has not yet materialized but this could likely be a pull factor for African stocks in the coming quarters.