A shift in economic activities has altered the outlook for capital markets across Africa, leaving stock exchanges struggling to attract new issuers as investors scrape the boards for returns in the face of government policies tilted in favour of fixed securities.
Since the crash in commodity prices a decade ago, the face of African stock exchanges has morphed from the heavy mechanics of industry to the agility of technology players and the soft touch of service providers ranging from financial to retail.
That swift change has seen previous bell weathers being upstaged by greenhorns or delisting altogether.
New initial public offerings are proving hard to come by in contrast to the constant flow of debt instruments such as government securities and Treasury bonds.
The fortunes across markets, however, is mixed with larger markets in western Africa appearing to attract new listings such as that of Airtel in Nigeria with issuers using it as a ladder to float in the more liquid London Securities Exchange, the latest being Airtel Africa.
However, issuers are also looking to list in other European financial capitals amid uncertainties around London's financial hub's leadership in the face of Brexit, whose controversies forced a change in the UK leadership last week in which Boris Johnson replaced Theresa May as prime minister.
South Africa's Naspers, for example, plans to list Prosus, its international Internet arm on Euronext Amsterdam with a secondary listing on the Johannesburg Stock Exchange on September 11.
MTN also listed on the Nigeria Stock Exchange earlier this year but not through an initial public offering.
According to Baker McKenzie, Global Cross Border Index African issuers raised $1.4 billion through listings in 2017 compared with $1.2 billion in 2016.
The number of companies listing on the continent, however, fell from 17 to 15, while those seeking cross-border listings were only two.
"African companies are seeking to raise capital internationally because as they mature and grow in size, they cannot raise sufficient capital in domestic markets. Going to look for capital say in London helps them reach out to a larger pool of investors," said Eric Musau, the head of research at Standard Investment Bank in Nairobi.
A further slowdown is expected with the London law firm's tracking data showing that only $69.8 billion was raised from 514 Ipos globally in the first half of this year.
Most of the activity was in the Asia Pacific region and was led by financials and telecoms. But while cheaper valuations in Africa make counters suitable for entry, the returns are not as attractive.
The MCSI Frontier Markets Africa Index shows listings on the continent gave a gross return of 3.79 per cent in the first half of the year (as of June 28, 2019).
In comparison, the MSCI Frontier Markets Index had a gross return of 12.14 per cent. Africa also showed lower returns when weighed against risks over the past three years compared with its peers.
In terms of PE valuations, the Africa benchmark was at 10.70 against 12.74 for all the frontier markets despite the dividend yield on the continent of 5.21 per cent being better than the 4.31 per cent for the latter.
Bloomberg put the forward PE for Africa stocks at nine compared with 12 for emerging and frontier markets, based on one year estimates. This means that investors anticipate relatively slower growth in earnings from African companies than elsewhere.
The MSCI data also shows that 2018 (negative 12.43) was the worst year since 2015 (negative 17.95) in the performance of the index which tracks the top 30 stocks in Africa including Safaricom, Maroc Telecom, Attijariwafa Bank, MCB Group, Guaranty Trust Bank, Dangote Cement,LafargeHolcim Maroc, Equity Group Holdings, Nestle Foods Nigeria, and BK Centrale Populaire from across 13 stock exchanges.
Analysts scratching their heads for why the low prices are not pulling in investors have pointed fingers at dovish stances by governments aimed at stimulating growth through low interest rates that have made sovereign papers and corporate bonds yields, as high as 14 per cent in Nigeria, more attractive.
"When the equity market is not performing investors and particularly fund managers shift to the bond market. Interest rates have been coming down and that is why there has been a lot of liquidity chasing government securities," said Eric Munyoki, an independent financial analyst based in Nairobi.
The Central Bank of Kenya and the Bank of Nigeria kept their key policy rates at nine per cent and 13.5 per cent, respectively, during their monetary policy reviews in measures aimed also at protecting currency stability in the face of threats from the US-China trade tiff.
"The decisively dovish shift by central banks has depressed long-term yields and should help extend the long expansion.
This makes for a benign near-term environment for risk assets, in our view, although uncertainty around the outlook has risen, said Blackrock Investment Institute," in its Global Investment Outlook Midyear 2019 released on July 8.
From its analysis, the institute said investors should look to reduce risks including by selling off risky assets, putting some money in emerging market debt and build portfolio resilience through purchase of government bonds.
It argued that such moves would protect capital as trade disputes and geopolitical tensions, evident in the US-China tariffs war and the conflict between Iran and the west over the Gulf of Hormuz passage, cause more uncertainty.
"The return on debt is certain, the yields are attractive. Why should I stay in equities when there is no policy clarity?" Oluwasegun Akinwale, a banking analyst at Lagos-based Asset & Resource Management, told Bloomberg last week.
The AFMI Bloomberg African Bond Index, which groups the local-currency debt of eight countries (South Africa, Nigeria, Kenya, Egypt, Ghana, Namibia, Botswana and Zambia) has gained 6.1 per cent in dollar terms since the start of May compared to 3.9 per cent for local bonds issued by developing countries.
According to Bloomberg the surge coincided with "a dovish tilt by major central banks" which increased the number of negative yielding securities.
It said the trend had created a boom for carry traders-those who exploit currency or market variations for margin gains-especially in Egyptian, South African and Nigerian bonds which have gained eight per cent, 6.9 per cent and 4.7 per cent, in respect, since April.
On equities, analysts said fund managers were tending to neutral except in cases where valuations were attractive and a security's operating macro-economic environment - inflation and taxation - stable.
Equity investors largely pursue growth and that item has been at a premium in Africa except in the case of Egypt and Kenya.
The South Africa economy contracted the most in ten years in the quarter to March 2019 while other resource dependent economies like Angola and Nigeria are struggling to revive growth.
That has not stopped stock exchanges innovating to attract more issuers and raise their profiles. The Nairobi Securities Exchange has been the most prolific in this, the latest being the launch of derivatives that are yet to gather traction.
The Mauritius Stock Exchange, which has succeeded in listing major companies at Port Louis, is now betting on attract listings from other African countries, a strategy that Johannesburg Stock Exchange tried with mixed success.