Key African economies not expected to slip in 2012 despite global volatility – Standard Bank Group

Economic growth in sub-Saharan Africa will remain subdued at about 5% in 2012 in line with an expected slowdown in global growth activity, but none of the continent’s key economies are expected to slip into recession, according to the Standard Bank Group’s latest African Markets Revealed report released January 19, 2012.

The report examines some of the key international and local factors that will drive markets in 21 African economies and covers strategies for investing in the continent across foreign exchange, interest rates, equities and Eurobonds.

The South-African based group is upbeat about the performance of currencies, bonds and equities in key African markets. And there has been marked improvement in recent months in the performance of Africa’s currencies as the markets again pressed home the message that real interest rates matter.

The report argues that the sharp increases in interest rates have added significant protection to a number of currencies and made them extremely attractive from a carry trade prospective.

The Group’s head of African Research, Stephen Bailey-Smith with good reasons believes that African markets will roll with the punches in 2012 despite the significant downward re-pricing of global growth since May 2011 fostering a jittery risk environment, which added to the very testing circumstances already faced by many African markets.

“Although we are still cautious on global growth, we are more constructive on asset prices that have already discounted plenty of bad news and are benefiting from ample G4 liquidity. Such an outlook should prove more supportive for commodity prices and portfolio flows into Africa that have been extremely limited in recent years,” said Bailey-Smith in a statement from the lender.

According to the Standard Bank Group, its index of the most-tradeable African currencies (AF10) returned around 5% in the four months since early September 2011 and “this was a significant out-performance relative to emerging market benchmark bond indices, which were generally down around 5% over the same period.”

The Bank says its latest economic growth forecast remains the same as that of 2011 and is below the International Monetary Fund’s (IMF) 5.2% projection.

“Since May 2011 we have been revising down our growth estimates for Africa predominantly in line with an expected slowdown in global growth activity. Our projection for weighted sub-Saharan African growth was 5% in 2011 (which is still below the IMF’s expectation of 5.2% revised down from 5.6%) and a similar trajectory in 2012, which is well below the IMF’s expectation of 5.8%,” it said.

The report cited political risk of a series of elections as one of the exogenous variables driving Africa’s markets that will remain a key differentiator in 2012.

“There is no shortage of election risks across Africa in 2012, with elections (or referendums) taking place in possibly 20 out of the 54 countries across the continent. The most closely followed by the international investor community will be the outcome of the ongoing electoral process in Egypt, presidential election in Senegal in February, parliamentary and presidential elections in Kenya (although they may be delayed until 2013) and parliamentary and presidential elections in Ghana in December 2012″, says Bailey-Smith.

By Ekow Quandzie

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