Africa is not immune to the sale of its assets.

Africa is not immune to the sale of all the assets that the markets are experiencing, but when the dust settles, investors will be able to find good opportunities on the continent, said Martin Richardson, CEO of RMB.

The quest for easy profit

According to Richardson:

“We are currently witnessing a rare and synchronized sale of all goods in Africa”.

“Typically, during periods of extreme volatility, we would see equities fall, but bonds rebound as investors seek safe-haven assets.”

“But the problem is that now, all assets are being sold – from stocks to bonds and even material assets like property and gold.”

"The easy money printing excesses of recent years are unfolding as investors are now once again sober and rigorous in assessing the true value of assets."

Richardson added that as the world faces a global recession, some African countries may have to restructure their debt.

"Africa's hard currency bond markets are currently effectively closed and limited funds are being raised internationally."

"However, when markets reopen, they will be offering materially higher and potentially better returns for investors."

the perfect storm

The current moment is generating a perfect storm of inflationary pressures and aggressive monetary tightening by central banks, combined with a deepening Russia/Ukraine crisis.

This situation has made raising capital through traditional bond markets particularly expensive for African countries whose governments have been forced to find innovative ways to raise capital.

He added that the only current happy dynamic is that African Eurobond maturities over the next few years are relatively controllable and are a sign of market maturity, as borrowers have actively managed their liability profiles.

"As debt markets in Africa reopen, we expect that in 2023 we may see an incremental shift towards less liquid private investments in African companies."

"This will be an opportunity for some investors as there are African companies that will not be relatively affected by a potential global recession."

“A global recession is likely to trigger a material depreciation of the local currency in specific African countries.”

“However, this is also worth monitoring as it can provide interesting opportunities as currency markets often go beyond basic principles.”

Richardson added that we should expect more structured transactions to help reduce certain credit and market risks.

"When equity markets stabilize over the medium term, we could see a global revival of convertible bonds that helps keep debt more affordable while keeping interest rates low."

“But in Africa, unfortunately, there are only a few large companies with a sufficiently liquid equity market to support a convertible bond issue, mostly in South Africa.”

Conclusion

Convertible bonds are a type of debt security that gives investors the right to exchange the bond for a predetermined number of shares in the issuing company at certain times in the life of a bond.

The interest rate is typically lower due to the potential to convert debt into equity at favorable terms.

As there are several international government agencies willing to support Africa during the difficult times ahead, it is becoming a safe way to invest.

Who is RMB?

Rand Merchant Bank (RMB) is one of Africa's leading Corporate and Investment Banks and is part of one of the largest financial services groups (by market capitalization) in Africa – FirstRand Bank Limited.

They offer their clients innovative and value-added consultancy, financing, trading, corporate banking and the main investment solutions.

As the Corporate and Investment arm of FirstRand Bank Limited (wholly owned by FirstRand Limited), it has access to a network of retail banks in 25 African countries, including representative offices and branches in the UK, India and China.

What do you think of this assumption? Will Africa have to be careful with these investments? We want to know your opinion, do not hesitate to comment and if you liked the article, share and give a “like/like”.

Picture: © 2022 Francisco Lopes-Santos