African governments were aware of the dangers of a pandemic having recently dealt with Ebola and therefore responded quickly to the outbreak of the coronavirus. Speedy implementation of interest rate cuts, a rapid response in debt markets and a range of fiscal stimulus packages that have limited the economic impact of the coronavirus on the African continent. An overall African stimulus package already made available to assist efforts in fighting the effects of the virus stands at over USD72 billion, roughly 3% of Africa’s GDP.
GDP growth for 2020 in Sub-Saharan Africa (SSA) is forecasted to contract by 1.3%, significantly lower than the -6.1% of advanced economies with larger service sectors whilst the SSA 2021 consensus forecast of 4.1% currently shows Africa is expected to have a strong v-shaped recovery. Africa Equity Fund focuses on high quality, mostly subsidiaries of multinational companies, and trades on a price earnings ratio of 10.7, dividend yield of 7.0%, and a ROE of 30.8%. Our portfolio companies have strong balance sheets and have all reported resilient results in earnings season.
The threats to developed economies and markets are increasing daily while Africa, with its youthful population being the economic future of the world, is likely to experience decades of economic growth. We see increasing tension between China and the U.S. around trade deals and global economic positioning, which will result in ongoing developed market volatility. The U.S. dollar looks both expensive and vulnerable as these geopolitical tensions ratchet upwards. In this context global investors are significantly underweight on Africa exposure and we see the growing relevance of African investments for both performance and diversification purposes.