Should one still invest in African Stocks? An Honest Overview

Stock exchanges the world over plummeted in response to the Covid-19 coronavirus pandemic spread, and fears over widespread devastation to lives and economies forced many countries to enter lockdown.

At the outset of the coronavirus market crash, the Johannesburg Stock Exchange (JSE) Top 40 stocks lost as much as 38% of their market capitalisation, with the JSE losing over R4.5 Trillion in market capitalisation since the start of 2020.

Within a matter of weeks, stock prices of leading companies were ravaged; real estate was down 50%, retailing 45%, and banks and financial services 41%.
However, share prices in April showed a quick but partial recovery, but are still below where they were at the beginning of 2020.

African stocks show a similar trend as can be seen in the graph below.



How long African stocks will take to recover fully is difficult to predict as the financial and economic toll of the coronavirus on African companies and countries remains to seen.

Experts agree that withdrawing investments at a time of such uncertainty is a bad move. Instead of waiting it out until the market returns and investing in good companies seems to be the better moves to make.

Is investing in African stocks worthwhile?

What we do know about past crises is that companies who have strong balance sheets, good leadership, and a compelling competitive edge, they are the ones that eventually recover. What we also know is that good blue-chip company stocks are now trading well below their value, presenting an opportunity for the informed investor.

According to economists the sectors that are expected to grow in the future include medical equipment, generic therapies, education and technology, digital communications, robotics and automation, security systems, environmentally friendly innovations, waste management, products for ageing populations, and so on.

At the time of writing this article, there are blue-chip stocks available on the JSE that are discounted by up to 30%.
There are also investment opportunities in Africa that have arisen out of the pandemic and change in how we buy, pay, travel or provide schooling. The move to keyless check-ins at hotels and contactless airline check-ins; demand for digital learning; mobile money and cashless transacting, are all examples of companies that are in great demand.

Tech, banking and Fintech

While we cannot with any certainty back any particular sector to lead the stocks race post-Covid-19, tech-driven companies are an obvious choice to dig up heavily discounted stocks.
African companies pioneered mobile money and are well poised to meet the demand for online ordering, delivery, and payment via mobile. As consumers face concerns over handling cash or touching Point of Sale devices, Fintech companies are at the forefront of these solutions.

The mobile money service called M-PESA by Safaricom, Kenya’s biggest telecoms operator is an example of such a company. It boasts 24 Million users in Africa and through a recent deal with Visa (NYSE:V), M-PESA will be integrated into Visa’s global payment system of 61 million merchants and 3 billion cards.

Joining the list of discounted shares in Kenya that are considered attractive includes KCB, Absa (JO:ABGJ) Bank Kenya, and Co-operative Bank which lost investors to safer asset classes such as gold, securities, dollar, and yen.
Nigeria’s Jumia also deserves a mention despite posting losses in the first quarter of 2020 due to supply problems. As an African focused e-commerce and Fintech company that listed on the NYSE in 2019, Jumia shows great promise and is worth keeping an eye on.

Digital health and logistics

Tech solutions for healthcare are another area in demand as countries look for solutions to diagnose patients quickly, and companies that invest in telemedicine or the delivery of medical supplies should make your list of companies to watch.
One company comes to mind: Zipline, a drone-delivery start-up that is delivering medicines, vaccines and supplies to help with Covid-19 response in Ghana. While Zipline is not yet listed it is this kind of innovation that should have every investor excited.

South African listed Imperial (JO:IPLJ) Logistics, sourcing, warehousing, transport and distribution group is an example of a company whose stocks are highly rated.

Buying African stocks

Investors must always be cautious and do their homework before making any stock purchases.
As a rule of thumb do not invest capital in companies that have high debt levels and low liquidity; these companies are high risk as they will find great difficulty navigating the tough times ahead.

One should also examine the dividends that were distributed over the previous five years and the earnings per share (EPS), to evaluate whether the price is discounted enough to meet the goals of the investor.
It is always recommended to get advice from an experienced broker who understands which stocks are discounted enough to make a good profit as the market recovers over the long-term.