Standard Bank: Fed Tapering to have Little Impact on African Markets

The tapering policy recently embarked upon by the US Federal Reserve, as it begins to wind down its monthly asset buying programme, should have little impact on African markets according to Standard Bank.

In its latest ‘African Markets Revealed’ report, Stephen Bailey-Smith, head of Africa research at Standard Bank predicts that the outperformance of Africa’s markets relative to broader emerging markets (EM) will continue during 2014.

Among other points noted in the report are the following:

  • The two key investment themes of 2013 globally were rotation into equities from debt, and into developing markets (DM) from EM. It is highly likely these themes will continue for much of 2014. Stronger US growth has enabled the Fed to start the process of tapering bond purchases (quantitative easing, or QE), which will gradually push US Treasury yields higher.
  • Africa’s markets (excluding South Africa) have weathered the anti-EM investor sentiment sponsored by the fear of Fed tapering very well so far outperforming in most asset classes.
  • In ‘somewhat of a win-win situation’, the report suggests that should the sharp rebound in the fortunes of EM currencies materialise as expected later in 2014, the influence on Africa’s market’s would be positive.
  • Standard Bank’s AF8 FX index (excluding the South African rand (ZAR) and Botswana pula (BWP) from the AF10 FX index) of the most widely traded African currencies returned a positive 7.4% including carry in 2013 compared to the bank’s EM10 FX index, which returned a negative 3.6%.
  • Global commodity prices are expected to continue to hold reasonably well, providing a solid base for a number of Africa’s economies.
  • Average economic growth across the continent is expected to remain robust outperforming most regions with the exception of emerging Asia.
  • Fiscal policy is expected to remain expansionary as most governments drive to overcome the infrastructure deficit. Fiscal financing, along with the ensuing current account (C/A) deficits, is increasingly coming from the Eurobond market. This is expected to continue in 2014 despite higher US Treasury (UST) yields.
  • It appears that the rebound in EM FX may have to wait a little longer suggesting that Africa’s FX return outperformance is set to continue, albeit subject to significant variance across the continent.

A full copy of the report is available from Rizwana Issa, director, strategic communications at FTI Consulting:


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