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The Malawi Stock Exchange (MSE) has emerged the third best performer in Africa after Zimbabwe and Morocco, a quarterly survey of African stock markets has shown.
Ghana-based Databank Research and Information Limited, a branch of Databank Financial Services Limited, released results of the survey last week.
Databank —a corporate and public finance advisory services group operating in the Economic Community of West African States (Ecowas) trading bloc says Malawi was one of the strong performing markets in the first quarter of 2006.
MSE beat some of Africa’s well-subscribed stock markets like South Africa’s Johannesburg Securities Exchange (JSE), Egypt and Nigeria.
Databank says MSE’s position was determined based on a return on index of 23 percent in US dollar terms and 31 percent in Malawi kwacha terms.
A return on index is a measure of gains that investors make on their capital in the listed companies they have shares in.
Databank says cheaper share prices were also behind MSE’s impressive performance.
“Arguably, the Malawian market has the cheapest valuation multiples on the continent,” reads the survey report.
But it points out that Malawi’s high foreign exchange rate risk and the small size of the domestic market present high risk exposure to foreign investors.
On the other hand, the report says Zimbabwe scored the first position, beating 15 other stock markets surveyed.
The Zimbabwe Stock Exchange (ZSE)—with a market capitalisation of US$3.72 billion and 79 listed companies—netted a return on index of 46.7 percent in US dollar terms and 72 percent in Zimbabwe dollar terms, shows the report.
Morocco Stock Exchange, with 71 listings and a market capitalisation of US$39.42 billion, reported a return on index of 35.9 percent in US dollar terms and 32.6 percent in the Moroccan local currency (Mhd) terms.
Databank says the Zimbabwe share market pulled a surprise due to negative real interest rates as a result of hyper inflation and lack of alternative investment avenues.
But it warns that while Zimbabwe’s performance looks impressive, a high risk hovers for foreign investors due to an acute forex shortage in that country.
Zimbabwe is battling to contain a volatile inflation of around 913 percent, said to be the highest in the world.
This is due to Zimbabwe’s unwavering economic crisis stemming from what analysts see as poor governance by the regime of President Robert Mugabe which has been in power since independence in 1980.
Reacting to the report, MSE Operations Manager John Kamanga (in the picture) said he expects the good tidings to be sustained in the near future.
“As more companies are set to post good profits and attract more investors, we think that the future looks promising,” said Kamanga.
He also said the local bourse, which finished in the top-six during a similar review last year, would also benefit from the fall in Treasury Bill rates—from 25 percent to around 19 percent—on the money market.
The drop in yields on the money market should lure investors to the stock market, given that comparative yields hover above 30 percent, aided by the scope of further cuts to interest rates.
But Kamanga deplored delays by Parliament to pass the Securities Bill which is meant to repeal the Capital Markets Development Act (1990) under which the MSE operates.
He said the current legislation is not conducive to foreign investors as, among other things, it does not recognise electronic ownership of shares.
In contrast, Kamanga said, the impending legal framework would phase out physical paper share certificates and minimise transaction and foreign exchange loss risks by reducing the transaction period to three days from seven.
Databank concludes in its report that indigenous investors in Africa have good reasons to celebrate as lower inflation would translate to better returns in real terms.
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