An Nairobi Securities Exchange employee monitors the electronic trading
on board. African markets have been largely insulated from the impact of
the Brexit on their currencies, stocks and bonds, even as several
central banks said that they were ready to manage their currencies to
avoid a sharp decline. PHOTO | FILE
By ALLAN OLINGO
In Summary
- African markets have been largely insulated from the impact of the Brexit on their currencies, stocks and bonds, even as several central banks said that they were ready to manage their currencies to avoid a sharp decline.
- Samir Gadio, head of Africa strategy at Standard Chartered Bank, said that the bonds markets is marginally weaker but has found its level.
- Mr Gadio said that that the relative stability of the African currencies reflects the fact that the African markets are heavily managed by central banks.
African markets have been largely insulated from the impact
of the Brexit on their currencies, stocks and bonds, even as several
central banks said that they were ready to manage their currencies to
avoid a sharp decline.
Last Friday, currencies, stocks and bonds plunged across Africa
after the UK’s vote to leave the European Union triggered a slump in oil
and other commodities and sent investors scurrying for safe havens.
Data from Bloomberg shows that $400 million Rwanda’s Eurobond,
yield jumped by 27 basis points to 7.59 per cent. The bond was issued in
April 2013 at 6.85 per cent. Ethiopia’s $1 billion 2024 Eurobond yields
climbed 10 basis points to 7.98 per cent.
The bond was issued in 2014 at 6.625 per cent. Nigeria also saw
its dollar bond due in 2023 rising 24 basis points, to 7.32 per cent.
However, this past week, the international bond market has been
relatively calm, gaining 1.5 points since the Brexit news broke.
Samir Gadio, head of Africa strategy at Standard Chartered Bank,
said that the bonds markets is marginally weaker but has found its
level.
“Investors will remain cautious for the time being until there is more clarity in the market,” Mr Gadio said.
Marcus Courage, the chief executive of Africa Practice, a
strategic advisory and communications consultancy, said that yields on
dollar bonds have risen in Kenya, Ghana, South Africa and also in
Nigeria.
“As volatility increases, and the dollar strengthens borrowing
is likely to become more expensive for African businesses and
governments. This could put plans by African governments to tap bond
markets on hold,” Mr Courage said.
The Kenyan shilling has remained relatively stable, with
pressure from importer dollar demand being cushioned by the prospect of
the Central Bank selling the dollars to shore it up.
On Thursday, the unit was trading at 100.90 to the dollar, compared with last Friday’s close of 101.20.
The Ugandan shilling traded slightly weaker as importers and
commercial banks built positions to hedge against the uncertainty
sparked by Britain’s vote to leave the European Union.
“We are still seeing some uncertainty in the market as a result
of the Brexit. We expect some rising demand next week to cushion against
the uncertainty,” Stephen Kaboyo of Alpha Capital said.
The Tanzanian currency also strengthened slightly in the week as firms sold dollars to pay their taxes.
“We expect the shilling to continue strengthening against the
dollar next week, but the local currency could come under pressure from
mid-July if demand for dollars starts to pick up momentum,” said Moses
Kawiche, a trader at CRDB Bank.
Mr Gadio said that that the relative stability of the African
currencies reflects the fact that the African markets are heavily
managed by central banks.
“I think we could be seeing low liquidity in these markets
alongside lower foreign participation. We haven’t really seen any
outflows or pressures in these markets,” Mr Gadio.
There are still concerns that African currencies could come
under pressure as the investors adjust their portfolios. The rand and
the naira continue to be exposed. The South African unit, which recorded
an 8.78 per cent fall to the dollar on Friday, has gained marginally
but is yet to recover from last week’s position.
The Governor of the Reserve Bank of South Africa Lesetja
Kganyago said he was confident that Brexit would not cause a recession,
despite several firms that have cross listed on the London Stock
Exchange being exposed.
“We won’t see a recession at this stage, but there is no doubt
that it will slow the South African economy given the weak growth that
we already have,” Mr Kganyago said.
The financial market volatility caused by Britain’s decision to
quit the EU, which sent the rand tumbling, could hurt investment flows
into South Africa but the muted response from investors offers a glimmer
of hope for Africa’s second largest economy.
“What we have seen in the past is that the response in the short
term on the currency side is almost muted. However, if we have a longer
period of uncertainty, then the African currencies tend to react in a
lagged way to emerging market currencies. It will take persistent risk
for more to happen,” Mr Gadio said.
Nigeria, which saw its forex reserves fall marginally to $26.34
from $26.42 billion last month, has also seen its currency take a slight
hit from the Brexit shock. Its Central Bank lifted the currency
controls last week and auctioned $4 billion on the spot and futures
market to clear a backlog of dollar demand.
The naira is currently trading at 282 units to the dollar,
marginally down from the 281.4 last Friday, while at the parallel market
the naira was quoted at 352 a dollar compared with 335 to the dollar
last week.
Its stocks also recorded marginal losses this week on fears that
demand for riskier assets will evaporate, slowing down the flow of
foreign funds into Nigeria
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