Impact of global crunch- time to invest!
22nd of February 2009
The African markets are slowly feeling the crunch from the credit crisis and indications are clearly pointing to a gloomy picture for most African markets. Although analysts have different interpretations of the impact of the credit crunch on Africa there is a general consensus however that African markets will all be negatively affected by the global squeeze on credit and the general decline in economic activities. Although most African economies are generally less connected to the global financial markets which has shielded them from the harsh conditions being experienced in Europe and USA, there will certainly be affected by the decline. However the credit crisis creates an interesting opportunity for long term investment in African equities. Although most markets have lost more than 45% of their value in the past 6 months mainly due to panic selling by investors, generally most blue chip companies including AVI recommended companies continue to report satisfactory performance. The expected decline in profitability expected in the second and third quarter is expected to be short term with recovery expected in the second half of 2010. Any investment into most African equities has to entertain a 2 year investment horizon. Equities with major institutional investors in particular have weathered the storm better than companies with many individual investors. Equally a number of governments in Africa(Nigeria) are exploring the opportunity of creating some stimulus plans to boost recovery of stock markets. This will accelerate the recovery of most markets whose fundamentals are still relatively strong. The financial services in particular has been phenomenal impressive in performance despite the major runs on banks happening across the globe. This is mostly due to the underdevelopment of credit market in most markets which has proved to be a blessing in disguise for Africa. An investment plan that focuses on solid blue chip stocks with strong fundamentals is likely to deliver positive results in the long run.