Trading the African Stock Exchanges

JSE

African Stock Exchanges belong to the class of emerging markets. As more African countries embrace democracy many of the stock markets that have arisen have begun to experience tremendous growth, providing opportunities for investors to trade stocks that are highly undervalued and have great potential.

The major stock markets in Africa are those of South Africa, Nigeria, Ghana, Kenya and Egypt. The JSE Ltd (Johannesburg Stock Exchange) is the largest stock exchange in Africa and the 16th largest stock exchange in the world. It is South Africa’s only full service securities exchange, connecting buyers and sellers in a variety of different financial markets, namely equities, equity derivatives, agricultural derivatives and interest rate instruments. Also worth noting is the Nairobi Stock Exchange (NSE), the fourth largest stock exchange in Africa in terms of trading volumes, and fifth in terms of market capitalisation as a percentage of GDP.

Apart from the South African Rand whose value is not far off the pace of the US Dollar, the Euro and the Pound, the currencies of most African countries are undervalued when compared with those of the developed world. This means that when a comparison is made between the prices of stocks of very solid companies in some of the countries illustrated and those of their foreign counterparts, these stocks are at bargain prices.

For example, in Nigeria the global financial crisis of 2008 halted the five year bullish run of stocks on the Nigerian Stock Exchange and prices returned to their 2001 levels. The most expensive banking stock in this exchange still sell for rock-bottom prices which shows that many of these stocks are noticeably undervalued. This situation exists in the majority of African stock exchanges.

Even though the last three decades have witnessed a rapid increase in the number and size of African stock markets, despite experiencing rapid growth in their number and size, they remain highly fragmented, small, illiquid and technologically weak. Consequently, their informational efficiency is greatly diminished. Even now, there are very few of them that offer online electronic trading so it may be difficult to open a trading account online. Transaction times can also be a tricky issue. Due to the lack of online trading facilities the old way of placing orders via your brokers using a phone or written orders is still common. Having said that, many African stock exchanges are now starting to make moves towards incorporating free online trading platforms into their operations, leading to increased transparency in trading.

Another anomaly is the regulation of the price variation. Many exchanges place a limit on the percentage gain or loss a stock can sustain in a day. Therefore, even if the markets are not doing well, you cannot expect your stock holdings to react in the way that occurs in other developed world markets. Likewise, daily profits are limited to the upside. The implication is that intra-day trading is limited.

Although still considerably a risky business in some aspects, as the world starts to shift its focus onto Africa as an up and coming region economically, it may be worthwhile to start taking the stock exchanges of Africa more seriously, with a view to trading. A Banc De Binary trader with a healthy risk appetite may decide take up the challenge to trade binary options on the stock exchanges in Africa with a view to making some profits.