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Capital Markets Presentation - LBS Africa Day Conference 2010


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Presentation by Dr Ayo Salami on African Capital Markets. Presented on May 8, 2010 at London Business School's Africa Day Conference.

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Capital Markets Presentation - LBS Africa Day Conference 2010

  1. 1. Africa - the last frontier market May 2010
  2. 2. Africa – the last frontier market Presentation London Business School Africa Day - 8 May 2010 Dr Ayo Salami 2
  3. 3. Disclaimer and Caveat This document does not constitute an offer, or the solicitation of an offer for the sale or purchase of any investment or security. This is a commercial communication. If you are in any doubt about the contents of this document or the investment to which this document relates you should consult a person who specialises in advising on the acquisition of such securities. Whilst every care has been taken in preparing this document, no representation, warranty or undertaking (express or implied) is given and no responsibility or liability is accepted by the Duet Group, its subsidiaries, holding companies or affiliates as to the accuracy or completeness of the information contained herein. All opinions and estimates contained in this report may be changed after publication at any time without notice. Members of the Duet Group, their directors, officers and employees may have a long or short position in currencies or securities mentioned in this report or related investments, and may add to, dispose of or effect transactions in such currencies, securities or investments for their own account and may perform or seek to perform advisory or banking services in relation thereto. No liability is accepted whatsoever for any direct or consequential loss arising from the use of this document. This document is not intended for the use of private customers. This document must not be acted on or relied on by persons who are private customers. Any investment or investment activity to which this document relates is only available to persons other than private customers and will be engaged in only with such persons. In European Union countries this document has been issued to persons who are investment professionals (or equivalent) in their home jurisdictions. Neither this document nor any copy of it nor any statement herein may be taken or transmitted into the United States or distributed, directly or indirectly, in the United States or to any U.S. person except where those U.S. persons are, or are believed to be, qualified institutions acting in their capacity as holders of fiduciary accounts for the benefit or account of non U.S. persons; The distribution of this document and the offering, sale and delivery of securities in certain jurisdictions may be restricted by law. Persons into whose possession this document comes are required by the Duet Group Limited to inform themselves about and to observe any such restrictions. You are to rely on your own independent appraisal of and investigations into (a) the condition, creditworthiness, affairs, status and nature of any issuer or obligor referred to and (b) all other matters and things contemplated by this document. This document has been sent to you for your information and may not be reproduced or redistributed to any other person. By accepting this document, you agree to be bound by the foregoing limitations. Unauthorised use or disclosure of this document is strictly prohibited. 3
  4. 4. African Equity Markets From Cape to Cairo There are 22 stock exchanges in Africa with a combined market value of US$1,107.5 billion and 2,084 listed equities Number of Market Value listed companies Sub-Saharan $78.7 bn 465 Africa (ex –SA) South Africa $370.7 bn 427 North Africa $166.1 bn 1,116 Dual Listed stocks $492.1 bn 76 Data as at 31 March 2010 4
  5. 5. Equity returns among the best in the world Average annual returns to various regions (2000 to 2009) 13% 11% 9% 7% 5% 3% 1% -1% -3% Emerging Markets Eastern Europe Far East G7 Countries Latin America North Africa Asia South Africa Sub-Saharan Africa Source: MSCI, African Business Research Africa has outperformed emerging markets in particular Asia over the last 10 years 5
  6. 6. What about volatility? “Give a dog a bad name” Standard deviation of annual returns (2000 – 2009) 60% 50% 50% 43% 42% 39% 38% 37% The risk from 40% 34% 33% investing in Africa 28% 30% is similar to that of 23% other emerging 20% markets. 10% The perception 0% that Africa is North Africa Latin America Eastern Emerging Asia Far East South Africa Sub-Saharan World Small G7 Countries Europe Companies Markets inherently riskier Africa is not supported by data Source: MSCI, African Business Research 6
  7. 7. Economy and equity markets moved in opposite directions The recent share price performance has not reflected the true profit performance of companies 80% 60% 40% 20% 0% -20% -40% -60% -80% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Earnings Growth Index Growth 7
  8. 8. Recent correction has created attractive entry point for long term investors The combination of price decline and earnings growth has created a unique buying opportunity for the long term investor. Despite a decade of significant economic growth, valuations are back to levels seen in 2000 30 2.5 25 2 20 1.5 PEG Ratio P/E Ratio 15 1 10 0.5 5 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 P/E ratio PEG Ratio 8
  9. 9. Lose on the currency swing Gain on the growth roundabout Sub-Saharan Africa equity returns in US$ since 2000 (excluding South Africa and Zimbabwe) 430% Despite currency 15% depreciation, cumulative 380% $returns are positive 10% averaging 8% per annum 330% Annual % loss on currency Cumulative $ returns (%) 5% 280% 230% 0% 180% -5% 130% -10% 80% -15% 30% -20% -20% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Annual % loss on currency Cumulative $ returns Source: Local Stock Exchanges, African Business Research 9
  10. 10. Correlation with other global markets Low correlation with other global markets offers diversification opportunities Correlation matrix between regional equity markets World Emerging G7 Latin South World Africa Asia Far East Small markets Countries America Africa Index Companies Africa 100% (ex South Africa) Asia -9% 100% Emerging markets -7% 88% 100% Far East -10% 99% 86% 100% G7 Countries 12% 18% 43% 17% 100% Latin America -14% 6% 44% 5% 57% 100% South Africa 3% 42% 58% 40% 22% 7% 100% World Index 14% 21% 46% 20% 99% 57% 24% 100% World Small 14% 22% 46% 21% 90% 46% 28% 90% 100% Companies Correlation coefficients based on daily equity returns between 1/1/2000 and 29/09/2008 Source: MSCI, African Business Research 10
  11. 11. Investment strategies Key sectors for equity investors • Banks • Telecoms • Breweries • Construction and cement • Consumer goods Increasing number of investment vehicles are becoming available. In the last 3 years about 10 new Africa focused funds have been launched Research can be challenging but fun 11
  12. 12. Trading and settlement Love thy neighbour – but don’t take counterparty risk Central Country Trading system Settlement cycle depository Algeria Electronic t+5 Yes Botswana Call over t+5 yes 12 countries (94% of the stock BRVM Electronic t+5 Yes Cameroon markets – ex South Africa) Cape Verde Egypt Electronic t+2 for active shares Yes have electronic and automated t+3 for dematerialised shares trading platforms. More t+4 for physical shares countries are already planning Ghana Call over t+3 yes a switch over. Kenya Electronic t+5 Yes Malawi Call over t+7 yes Mauritius Electronic t+3 Yes Morocco Electronic t+3 yes Mozambique Also more markets are moving Namibia Electronic t+3 Nigeria Electronic t+3 Yes towards the international South Africa Electronic t+3 yes standard of t+3 settlement Sudan Swaziland Call over t+5 cycle Tanzania Electronic t+3 yes Tunisia Electronic t+3 yes Uganda Electronic t+5 Zambia Call over t+5 yes Zimbabwe Call over t+7 12