Brian Benza
10 October 2008
Local investors have begun to feel the pinch of the global financial markets' volatility, as stock prices on the Botswana stock Exchange this week went tumbling in tandem with international trends.
In the first three trading days of this week, investors on the foreign board lost as much as 32 percent of funds and immediately analysts started to sound the alarm bells, warning shareholders to reduce their exposure in companies that have primary listing in foreign markets.
Most counters on the foreign board are either dually listed or multi-listed on international bourses and therefore any development on their primary listing markets will affect share prices here.
As the financial crisis deepens in the United States of America (US) and Europe, share prices on the international stock exchanges went through the floor this week, and the foreign board was not left unscathed, with companies such as Anglo, Af Copper, Diamonex, Discovery and Aviva being among the hardest hit.
On Monday as the Domestic Companies Index (DCI) enjoyed its usual surge, gaining 0.41 percent to 8,601.66 points ,the Foreign Companies Index(FCI) dropped to 10.25 percent, leading to the All Companies Index(ACI)to also decline by 9.51 percent.
As a result of the volatility on the global markets, investment analysts have even started to reach for the panic button, warning local investors to either reduce their exposure or desist from taking up stakes in the counters on the foreign board for a while."We expect the DCI to continue on a recovery mode, and the FCI to weaken further as a result of the current volatility in global equity markets.
"Against this background, we recommend investors to reduce their exposure on the Foreign Equity Main Board," says a market report from Motswedi Securities this week.
The knockdown went further on Tuesday as the FCI plunged 21.12 percent to finish at 1,558.09 points after losses in most counters on the Foreign Equity Main Board, as the bloodbath on global equity markets intensified. Against this backdrop, the ACI plummeted by 19.72 percent to finish below the 2,000 point mark.
On the day significant losses were recorded in Anglo, down a massive 2,491 thebe (10.4percent) to 21,384 thebe, reflecting the losses from its primary markets due to the downturn in global equity markets. Aviva shed 25 thebe to 228 thebe, while Engen came off 10 thebe to 480 thebe on profit-taking. Other losses on the day were in Diamonex, African Copper, and Discovery Metals.On Wednesday, investors continued to suffer as once again the FCI shed 0.01 percent to end the day at 1,557.94 points, pulled down by losses in Aviva, down 28 thebe to 200 thebe, Discovery Metals lost 24 thebe to 148 thebe, Barclays lost five thebe to 840 thebe on profit-taking and Diamonex shed another two thebe to 91 thebe.
However, the damage to the local individual investors should be minimal as the bulk of the shares on foreign counters are either held by institutional investors or cannot be actively traded on the open market. On the other hand, although the damage on the local markets will be expected to be limited only to the foreign counters as Africa's financial sector is generally not exposed to the same leveraged credit derivative products that have driven several US and European banks to bankruptcy in recent weeks, the World Bank this week warned that the crisis in developed economies threatens to slash capital investment flows into Africa.
"The most damaging effect potentially is on capital flows. You know well that Africa has seen very strong growth in foreign investment, both direct and portfolio investment, in the past six years," Shanta Devarajan, the World Bank's chief economist for Africa told Reuters news agency.
"Now there is a risk that if there is a really difficult financial crisis in the United States and Europe and risk aversion rises, it is possible these capital flows, which have fuelled growth in Africa, will fall. It will be a very, very serious problem for the continent," he said.
Africa's growth rate increased to 6,2 percent last year from 3,5 percent in 2000, World Bank figures show, partly because of huge inflows of foreign capital to invest in the continent's oil, mining and other industries.
As a reaction to the crises, several central banks on Wednesday cut their interest rates by half a percentage point in an effort to steady the faltering global economy.
The UK, US, European Central Bank (ECB), Canada, Sweden, and Switzerland all cut their bank rates by 0.5 percentage points.
China also cut its rate, but by 0.27 percentage points.
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