Tough liquidity constraints are a challenge for investors focused on African markets, which have been dominated by foreign investors, Renaissance Capital said in a note on Monday.
Foreign interest in African stock markets such as those in Kenya, Nigeria and Zimbabwe has main stayed trade dealings since the beginning of this year.
Edem Lassey, an analyst from Investec explained earlier this month that equity markets across the African continent had generally shown significant growth so far this year.
“If you look across African markets you will see that … (since mid-January) stock markets are up in quite a few of the bigger markets — 10 percent across the board — as global investors and local investors have more risk appetite,” he said
This is despite usual concerns among international investors over uncertainty normally occasioned by apprehension over political instability.
“The lack of liquidity on Sub-Saharan Africa’s (SSA) stock exchanges is a major challenge for investors, deterring many from involving themselves directly in African equity investing,” said analysts at Renaissance Capital.
They suggested that in a bid to “overcome the illiquidity issue of investing in Africa directly” international investors keen to snap up equity in African stocks were using “South African or global multi-national companies that have exposure to African economies as investment conduits to gain exposure to the… fundamental Africa story”.
However, this strategy is viewed as having “drawbacks” with the analysts favouring “direct Africa equity investment”. Fund managers handling African equity investments on behalf of international investors say local investors are being left behind in the latest rush for equity investments across the continent.
John Legat, the manager of Imara African Opportunities Fund said data indicated that foreign investors were active on equity markets in African countries.
“It’s clear from volume and trading data, certainly in Nigeria, Kenya and Zimbabwe, at least, that foreign investors continue to dominate,” he said.