Investors who traded bonds in Africa this year were rewarded greatly. Africa's sovereign dollar debt yielded total returns of 20% since the start of 2019. This alone is more than any other region in emerging markets.
Local bonds performed strongly and this saw the Egyptian pound and Nigerian naira bonds each returning more than 30% in dollar terms.
According to J.P. Morgan Chase & Co.’s indexes, treasuries narrowed almost 100 basis points this year. Still, at 461 basis points, that spread remains the highest of any emerging-market region and double that of Eastern Europe.
Bank of America strategists, David Hauner said that Africa is a “land of opportunity” and could be one of the main beneficiaries if the U.S. and China make more progress on trade talks. Africa having a lot of potentials has also attracted the CEO of Twitter. He revealed he was going to relocate to Africa (particularly Nigeria and Ghana) in the first half of 2020.
Bloomberg reveals that investors face plenty of potential risks in 2020 as South Africa could lose its last investment-grade rating, Ghana’s government might ramp up spending ahead of elections, Zambia’s debt crisis could spiral out of control and Nigeria may be forced to devalue its currency.
Egypt is a favourite portfolio for investors. Investors are attracted by yields of around 14% on pound bonds, and have moved to the country. The currency has rallied 12% this year, its best performance in at least 25 years and Societe Generale SA forecasts it will gain another 4.5% to 15.35 per dollar in 2020.
Kenya’s economy is forecast to grow by 5.8% in 2020, thus is one of Africa’s most rich nations. Bank of America says the removal of a cap on interest rate in November is a reason for optimism and should help the government obtain a standby loan from the IMF. Having being forecast to be 6.6% of gross domestic product this year, it is one of the widest in Africa.
Angola is Africa’s second-biggest oil producer and is still recovering from the crash of crude prices since five years ago. Recently, the IMF said the economy will contract for a fourth straight year in 2019. Investors are still being impressed by the central bank’s reforms, including the devaluation of the kwanza.
According to data from the Johannesburg Stock Exchange, Portfolio investors have pulled out from South Africa massively this year, pulling a net $10 billion from its stock and local-bond markets. They’ve been concerned by the deepening crisis at state-owned power company Eskom Holdings SOC Ltd., which can’t service its $30 billion of debts without government support, and the increasing chance that Moody’s Investors Service will cut South Africa’s final investment-grade rating to junk. If a reformation of Eskom occurs, investors may come running back.
Nigeria’s status as one of the world’s best carry trades will probably last as long as central bank Governor Godwin Emefiele keeps the naira stable. That’s becoming harder, with Nigerian foreign reserves having dropped 14% to $39 billion since July. Fiscal authorities, meanwhile, will try to boost an economy that has been growing more slowly than the population for the past five years.