a field guide to African stock markets
The stock market can be a pretty confusing, intimidating place for new investors.
With all of its charts, ratios, and jargon, it’s clear why many people choose to either hire a professional to manage their stock portfolios or to ignore stocks altogether.
Are you one of these people?
If so, I’m glad you’re here, because, today, I’m going to show you a magic formula for picking great African stocks.
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If you’ve ever traveled in Southern Africa, I’m sure you’ve spotted a Shoprite store. Whether it be the bright red logo of their eponymous supermarkets, the upscale suburban Checkers stores, or their Hungry Lion fast food joints, the company’s dominant market presence is difficult to miss.
Clearly, Shoprite feeds a continent on the rise.
This reality is anything but revelatory to Africa investors. The company’s share price has risen exponentially as the narrative of the continent’s emerging middle class took hold.
The stock now sports a P/E ratio of 27. Is it worthy of the hype?
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It’s time to stick my neck out.
I’ve talked a lot about the past performance of various African stocks, and I’ve asked a number of local experts for their favorite listings. But I haven’t often gone out on a limb and made picks of my own, and many of you have noticed.
So, it’s only fair that I go on record with my best bets.
Here are my top South African stock picks. I expect that, on average, they will outperform the Johannesburg Stock Exchange All Share Index over the next 12 months.
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When we last left Boniface and Mercy, they had just agreed on a business deal. Mercy and the other members of her investment club would give Boniface $10,000 for the purpose of opening a new shop in a promising location near a new textile factory.
In return, Boniface would give the club a 10% ownership stake in his business, SmileSave Supermarkets.
Let’s see how the venture fared since then.
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Let me tell you a story about the entrepreneurial Boniface, his analytical friend Mercy, and how they learned first-hand why companies choose to issue stock and why investors love to invest in them.
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When I asked my friend Kamanda Morara of Ashanti Research for his best Kenyan stock pick for 2013 in mid-December, I had no idea that his choice would bear fruit so quickly.
His tip, KCB Bank Group (KNCB:KN), was trading at a price of KES27.50 at that time. This gave it a dividend yield of 6.7% and a trailing P/E ratio of just 6.5.
Someone must have been eavesdropping on our conversation.
The stock now boasts a price of KES33.50 — a gain of nearly 22% in less than two months.
So, I checked back in with Kamanda last week to congratulate him and to ask whether he felt KCB still had room to run.
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I’ve received lots of great questions from readers via the contact form in recent months. So I thought I’d answer some of them publicly in the hope that they might help answer others’ questions, too. Here’s one from Zimbabwe:
Dear Ryan,
l’m Zimbabwean and don’t earn much, but I feel like I should be investing.
Most of your articles are about Americans investing in Africa at minimum deposits that are far above an amount I can even dream of.
Is it possible for a minimum-wage earner like me to invest on an African stock exchange for a reasonable amount?
Kind Regards,
Nicky
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Five years ago, Kenyans were in the midst of one of the darkest months in their nation’s history. A deeply flawed presidential election resulted in protests that rapidly descended into a spate of ethnic violence.
Unsurprisingly, the Nairobi Stock Exchange took a dive, losing $591 million on 2008′s first day of trading.
At the time, it was difficult to see how the country would recover. But Kenyan businesses picked up the pieces and carried on, producing goods and services, creating jobs, and investing in a better future.
As Kenyans warily enter into another election season (polls are scheduled for March), it can be difficult to see past the daily political headlines. They can cause even the most savvy investor to overreact – selling in a dip and buying on a bounce.
So, I think it’s helpful to take a closer look at how resilient Kenyan businesses have been in order to help us keep a long-term view.
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Last week we counted down the ten best African stocks of 2012. There were some eye-popping performances on that list.
This came as no surprise to those of you who have been following the performance of African stock markets. Nigerian investors saw their market rise 55% in dollar-adjusted terms over the past 12 months. The Nairobi Stock Exchange soared 54%. And Zimbabwean stocks jumped 32%.
In light of these gains, many of you have asked whether there are African mutual funds that will allow you to simply and easily direct a portion of your investment portfolio toward these markets.
Here are three that are readily available to South African investors.
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Nigerian companies dominate this year’s list of the best-performing stocks in frontier Africa. In fact, domination may be an understatement. First, second, and third place all went to Nigerian stocks, and all but four of 2012′s 10 biggest gainers hail from Africa’s most populous nation.
Here’s a list of the Sub-Saharan stocks (not including South Africa) that have gained the most in US dollar terms since the start of the year.
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Coffee Junkie. Air Guitarist. Number Cruncher. Sometime Jogger. Labrador Wrestler. Former Partner, Kivuno Capital Management. Editor, InvestingInAfrica.net. Read More.
