Standard Chartered Bank, an international bank with more than 50 000 employees in 56 countries, including South Africa, says African markets are overcoming their historical liquidity problems and attracting increased, sustainable portfolio flows.
Razia Khan, Standard Chartered Bank’s African economist, says: ”Investor interest in African markets continues to grow and 2007 will see them finally making their true mark on the world stage.
”In part, this is a reflection of the improved picture across many of Africa’s economies. Structural reform, higher growth rates, healthier external balances resulting from the strength in commodity prices, and debt relief have all contributed to investor interest, along with favourable global liquidity conditions.
”Global liquidity has manifested itself in benign emerging-market conditions generally, creating downward pressure on yields. African markets, still offering high yields, have stood apart, attracting increased portfolio flows.”
Khan notes that whether it is Africa’s growth prospects or its yield attraction, the new portfolio flows into Africa look likely to be sustained.
”Another factor that is likely to add significantly to portfolio flows is that the correlation between established emerging markets is becoming worryingly high; African markets offer a diversity of political and economic influences that underscores a compelling African investment story.
”Liquidity constraints are therefore unlikely to hamper attractive long-term returns.”
Khan also points out that, crucially, compared with other emerging markets, African countries on average exhibit a great degree of foreign-exchange liberalisation, an important precursor to sustained improvements in liquidity.
”Ex-South Africa, other African equity markets are small and corporate debt markets are almost non- existent. So far, government debt markets have been the key beneficiaries of portfolio inflows.
”But improvements in economic management, with smaller fiscal deficits being recorded, mean limited issuance of domestic debt. And where countries have already benefited from external debt relief, donors are reluctant to allow the build-up of new external debt.
”These major factors can make it seem that the challenges to the liquidity hurdle appear overwhelming in Africa, but given the continent’s need for increased capital inflows to meet its development needs, the need to establish a benchmark for private-sector issuance remains.
”Of equal importance is that in world of abundant liquidity, flows will seek out higher liquidity where they are available. Continued reform in Africa, whether they are economic or regulatory, will therefore add to the appeal of investing in African markets.”