COVID-19: Local Investors Drive African Stock Markets
By Dipo Olowookere
The global health crisis caused by the coronavirus disease (COVID-19) seems to have been a blessing to African stock markets.
This is because the situation gave domestic investors the opportunity to be fully involved in the markets, which had hitherto been largely dominated by foreign portfolio investors.
In Nigeria, offshore investors had always dictated the direction of the market, but during this period, local investors controlled the activities and led to the market staying stronger when many thought things would go south as result of the exit of the non-resident guys.
It was a similar situation elsewhere in Africa, where the stock markets witnessed an increased participation of domestic investors.
According to data presented from the PricewaterhouseCoopers (PwC) Nigeria 2019 African Capital Market Watch, which reviewed the performance of Africa’s capital markets between 2010 and the first quarter of 2020, things were better between January and April 2020.
However, it was observed that the African equity capital markets activity recorded a downward trajectory over the past three years as major economies on the continent are faced with fiscal challenges due to growing debt levels and slow economic growth.
Capital market value in 2019 was the lowest seen over the past decade, with the volume of deals lower only in 2012, the data presented at a webinar co-hosted by the Making Finance Work for Africa (MFW4A) partnership and PwC Nigeria showed.
The event was to explore the impact of COVID-19 on African capital markets.
African economies now face the unprecedented challenge of the COVID-19 pandemic, which has severely impacted global financial markets, according to Andrew Nevin, PwC Nigeria’s Chief Economist, and Alice Tomdio, the firm’s Director Capital Markets, who presented the data.
Commenting on the data and the potential impact of the COVID pandemic, Geoffrey Odundo, CEO of the Nairobi Securities Exchange said, “Capital markets in East Africa have taken a hit, with a 20 percent decrease in trading volume since the beginning of COVID-19.”
On the positive side, there was increased activity from domestic investors, he added.
Mr Daniel Ogbarmey Tetteh, Director-General, Securities and Exchange Commission (SEC), Ghana, said that market activity on the Ghana stock market had remained robust, with an almost threefold increase in trading volumes between January and April 2020, compared to the same period in 2019. Again, a good proportion of these trades originated from domestic investors.
Speakers also stressed the important role of African capital markets in supporting the post-COVID recovery. For this to happen, African markets need to be deepened and provide avenues for investment of the significant pools of local capital currently tied up in “dead” assets.
Expanding the range of available asset classes should also include measures to attract and support new listings.
The panel agreed that the increased engagement of local investors in the current environment was a positive sign, and that developing a deep pool of domestic investors is essential for African capital markets to play their full role in supporting the post-COVID economic recovery.