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28 October 2015

We pick up where we left off last week: This coming year the decline in global assets spurred by the slowing of China’s economy will be felt in most sub-Saharan countries.

Already this year African stocks have lost substantial amount of money for investors including Kenyan and Nigerian equities which languish in bear markets on concern slower economic growth will dent corporate earnings.
Bloomberg Africa reports that the MSCI Frontier Markets Index, which includes Kenya, Mauritius, Morocco, Nigeria, and Tunisia fell 4.2 percent in the last weeks amid a rout in global assets spurred by evidence that growth in China’s economy is slowing down. Stocks in Egypt have been the biggest losers. Egypt’s EGX 30 Index is down 21 percent this year, the fourth-biggest decrease globally, as oil tumbled below $40 a barrel. Kenyan equities, including
Vodafone Plc’s Nairobi-based unit Safaricom Ltd. and Diageo Plc’s East African Breweries Ltd., dropped an average 7.8 percent, while securities traded in Lagos, such as PZ Cussons Nigeria Plc and Union Bank Nigeria Plc, slid 6.6 percent.
Nigeria, Africa’s largest economy and oil producer, is struggling to cope with slump in oil prices, and weak naira. In Kenya, growth is slowing as the country’s $1 billion-a-year tourism industry contracts following a spate of attacks by Islamist militants and a drought cuts tea crops, hurting the East African nation’s largest sources of foreign exchange.
Time for investors with , say, five-year views to buy selected Nigerian and Kenyan stocks, you’re getting these at five-, six- or seven-year lows in terms of multiples!
No question African countries and their economies this year are under a lot of pressure because of very low commodity prices. Earlier this week, the Bloomberg Commodity Index, which tracks 22 different commodities, hit a 16-year low. Oil has dropped 60% from last summer to its lowest price since the last financial crisis. And that is where the real issue lies: China’s possible economic slowdown. Indeed, a report by International Monetary Fund finds that China affects the region’s economies directly through its exports and indirectly through commodity price effects, and through the international prices of manufacturing products. The reports finds that a 1 percentage point decline in China’s investment growth is associated with an average 0.6 percentage point decline in sub-Saharan Africa’s export growth. The impact is larger for resource-rich countries, especially oil exporters because they account for a large share of the region’s exports to China.
It’s expected generally that economic growth is going to be weak, but if you want to know when this growth is going to pick up? Can we say when China manages to put its house in order and restore confidence?

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The Pan African Chamber of Commerce and Industry was established in 2009 by 35 founding national business chambers to influence government policy and create a better operating environment for business.

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