It’s a marathon, not a sprint…

Investors seem to more and more tend toward a risk-adverse mode following a rally in emerging markets in general over the last three months and given ambiguity over US interest rates. Consensus assumes a 20% probability of the Fed increasing its rates at its meeting next week while the probability of an increase by December stands at 52%. The fact that dollar strengthened versus other currencies after data showing faster-than-expected growth in U.S. consumer inflation promoted the case for the Fed to hike interest rates later this year added to the confusion. Yet, expectations of a Fed rate hike at next week's meeting tempered after US retail and industrial disappointed.

JSE ASI lost 2.84%. Several stocks witnessed their biggest weekly loss as resources stocks were hit by the change in US rates forecasts. The Rand fell as prospects of higher US rates hit the currency already struggling due to domestic political tensions. The next catalysts will take place next week as both the South African Reserve Bank and the Fed are to present interest rate decisions. The main selling were gold and platinum. The gold price has just been falling, platinum price has been falling and is putting the whole market down. Bullion producer Harmony Gold fell 5.13 percent to 47.30 rand, while Sibanye Gold was down 3.31 percent at 49 rand and Gold Fields shed 3.90 percent to 67.58 rand.

EGX 30 lost 2.55%. Investors seem to have taking the opportunity of some profit-taking during the Eid Al-Adha celebration.

NGSE ASI gained 1.02%. Inflation continues to increase in the country as food prices jumped making the case for another interest rate increase from the Central Bank despite the fact the economy contracted in the second quarter. Inflation increased from 17.1% to 17.6% according to the country’s National Bureau of Statistics. Since the Central Bank removed the peg of N197-199 per dollar the naira has lost almost 40% of its value versus the dollar which increased price pressures in the country. The Monetary Policy Committee is to present its decision at its meeting on 20th September and consensus expects a 75 basis points increase.

In an environment with low growth and low returns, African markets provide high growth, high returns have lower debt levels. Over the long term, the significantly younger population with increasing purchasing power and thus increasing demand for goods make African markets attractive for investors given better growth prospects compared to western markets. Not to mention that a US recession could be a risk of the Fed increasing the rates too much. In other words, short term moves should not shadow the potential long term reward. Then how long is short and long term is part of each one’s judgement keeping in mind that when investing in African markets, it’s a marathon and not a sprint…