African Stock Exchanges: Difficult Road to Long-Term Financing and Efficiency
Since the early 2000s, the evolution of the financial system in Africa has been marked by the emergence or development of new players, including stock exchanges whose number has increased from 18 in 2000 to 29 today, on the continent. This positive development seems consistent with the economic policies adopted by most countries, which make a large contribution to the financing of development infrastructure and investment in the private sector.
Is it to the extent that the scholarships have fulfilled the missions assigned to them? What are the achievements? What are the pitfalls on the way? What are the solutions to consider?
GOOD NEWS !
African stock exchanges have several achievements to their credit. Indeed, between 2000 and 2017, their overall capitalization almost quadrupled from 261 billion to 1 000 billion US dollars. For the most part, they have changed their size by strengthening the base of local investors while opening up more to international investors.
The capacity of African stock exchanges to mobilize resources has also increased. Indeed, in terms of capital increases, African stock markets raised $ 10.56 billion in 2017 compared to $ 5.1 billion in 2013, a little more than double in five (5) years. In the case of Initial Public Offerings (IPOs), African stock exchanges registered 28 new introductions in 2017, compared to 23 in 2013, for a fundraising increase from $ 902 million to $ 2.87 billion over the period, more than triple in five (5) years.
In the same vein, 15 African stock exchanges have launched SME markets or compartments, including 14 in the last 15 years. To date, about 182 SMEs are listed in Africa.
The stock markets of the Continent have also been in tune with the rapid rise of new technologies. Many have been continuously quoted and on the online stock exchange while multiplying the reflections on the penetration of disruptive technologies in their activities. Major efforts are also being made by all African stock exchanges to strengthen the financial education of the population through sensitization days, face-to-face or online training, etc.
Finally, three (3) stock exchanges in the continent are listed on their own markets: Johannesburg Stock Exchange in 2006, Nairobi Securities Exchange in 2014, Dar es Salaam Stock Exchange in 2016. The Nairobi Securities Exchange, for its part, sold 38% of its capital in the context of a $ 7.1 million IPO in August 2014. The Dar es Salaam Stock Exchange mobilized $ 3.4 million through the sale of 15 million shares.
BAD NEWS !
The stock markets are unfortunately still subject to excessive fluctuations. Indeed, the volatility of prices and indices in recent years has raised concerns from both local and international investors. These concerns relate primarily to the degree of efficiency of African stock exchanges and their ability to provide long-term investors with superior returns compared to alternative investment vehicles.
As an illustration, the Johannesburg Stock Exchange recorded in 2015 an increase of 1.85%, then in 2016 a decrease of 0.08% and in 2017 an increase of 17.47%.
The Nigerian Stock Exchange recorded in 2015 and 2016 respective decreases of 17.36% and 6.17% before recording an increase of 42.30% in 2017. The Egyptian Stock Exchange fell by 21.52% in 2015, then increased by 76.20% and 21.66% respectively in 2016 and 2017. The BRVM ended the year 2017 on a downward trend (-16.81%), like the previous year (-3.87%) after having recorded strong successive increases from 2012 to 2015, for a total of 88.2%. The Ghana Stock Exchange recorded in 2015 and 2016 respective decreases of 11.77% and 15.33% before increasing by 52.73% in 2017. The Zimbabwe Stock Exchange recorded in 2015 a decrease of 29, 45%, then in 2016 and 2017 respective increases of 25.84% and 124.16%. As for the Botswana Stock Exchange, it recorded an increase of 11.67% in 2015 before declining to 11.40% in 2016 and 5.75% in 2017. This erratic trend that we often observe on the stock markets of the countries developed or emerging is more difficult to accept for the African continent. For example, the Paris Stock Exchange fell 0.54% in 2000, then 42.68% in 2008 before gaining 9.26% in 2017. The Shanghai Stock Exchange posted a decline of 15.40 % in 2004, then up 315.44% in 2007, followed by a decline of 65.39% in 2008 before rising to + 6.56% in 2017.
It is therefore not surprising to see a stock market go down, after a relatively long period of growth, and vice versa.
Does it mean that you have to give in to panic?
I think it is important to recall the fundamental principles of investing in stock markets. These include the following golden rules:
(i) keep your cool: do not panic when classes start to fall; no runaway either, when the wind blows up; (ii) not invest all of its savings on the stock market; (iii) do not put all your eggs in one basket: diversify stock purchases and think long-term: the longer you invest, the more you reduce the risk you incur; (iv) be guided by a professional; (v) be wary of rumors; (vi) not buying expensive stocks; (vii) keep informed not only of economic and financial news but also political news. The respect of these golden rules is necessary if one has a long-term vision of the stock market investment.
THE BATTLE OF LIQUIDITY: CASE OF THE BRVM
In this tumultuous context with its share of legitimate concerns of unaccustomed investors, the BRVM is silently gaining the battle of liquidity. Indeed, the liquidity of the Regional Stock Exchange rose from 5.46% in 2012 to 21.88% in 2017, thanks to the move to continuous listing, splitting operations on the market and the obligation made to investors. listed companies to comply with the regulatory float.
Since 2013, volumes traded at the BRVM have risen sharply. They went from 65.6 million shares traded in 2013 to 217.7 million shares in 2017, an increase of 231%. If efficiency boils down to the ability of quoted companies’ prices to reflect at any time all the information available on the market or the ability of investors to formulate rational expectations and to trade on the basis of these expectations, the way is still too long for most African stock exchanges.
WHAT TO DO THEN!
Education, education and still investor education;
Professionalisation, professionalization and further professionalisation of market players;
Dissemination, dissemination and further dissemination of financial and non-financial information by listed companies;
Finally, respect, respect and still respect the rules of the market.
