Where to Invest Now: The Most Promising African Stock Markets

African stock markets have put together an incredible run of late. This has prompted several readers to ask which one looks like the biggest bargain now.

So, I thought it would be a good time to look back at a post that attempted to answer this question 13 months ago to see how well my forecast panned out.

In that article, I predicted that Ghana, Zambia, and Cote d’Ivoire would be the best-performing African stock markets. I hadn’t specified a time frame, but with over a year past, I think it’s a fair time to evaluate my accuracy (or lack thereof).

The chart below shows how I predicted the markets would rank on the left and the exchanges’ actual performances on the right.

Market Performance: Forecast vs. Actual
ExchangeForecast Rank (May 2, 2012)Actual Performance Rank (as of May 31, 2013)Dollar-Adjusted Performance (May 1, 2012 - May 31, 2013)
Ghana Stock Exchange12+65.6%
Lusaka Stock Exchange26+10.5%
BRVM (Côte d'Ivoire Stocks Only)35+39.8%
Nairobi Securities Exchange43+61.0%
Uganda Securities Exchange54+57.2%
Namibian Stock Exchange69-2.6%
Nigerian Stock Exchange71+70.5%
Botswana Stock Exchange87+5.2%
Stock Exchange of Mauritius98-1.2%
Johannesburg Stock Exchange1010-14.1%

As you can see I was a bit too enthusiastic about Zambia and Namibia, and I didn’t anticipate the Nigerian Stock Exchange’s tremendous performance. Overall, however, I felt the ranking did pretty well at picking winners and losers. It got four out of the top five right, and was right on the money by singling out the Johannesburg Stock Exchange as the least attractive market.

Where to Invest in Africa Now

Now let’s see what my crystal ball is telling me will happen over the next 12 months.

There’s actually no magic here. We simply want to identify the markets with the best combination of growth and value. The logic being that a fast-growing economy offers companies an environment with ample opportunity to increase earnings. This is counterbalanced by a measure of stock market valuation to get a sense of how much of the growth story has already been factored into stock prices.

To get a handle on the growth part of the equation, I consult the IMF’s latest World Economic Outlook. This is where I find GDP growth forecasts from the present day to 2018. I then calculate a composite growth rate by giving the shorter-term forecasts higher weights and the more speculative long-term forecasts lower ones. The chart below shows these composite growth rates.

IMF Forecast of African Economic Growth
CountryProjected GDP Growth (2013 - 2018)
Côte d'Ivoire7.86%
South Africa3.18%

So, the IMF believes Cote d’Ivoire, Zambia, and Nigeria will each grow their economies at an annual rate of seven percent or more between now and 2018. It stands to reason, therefore, that certain businesses are going to do quite well. But, as prospective investors, we can’t stop our analysis there. We want to find the stocks in fast-growing economies, but we don’t want to pay much for them.

Thus, we now turn our attention to stock valuations in these countries. To get a sense of relative value, we’ll compile the price/earnings ratios of the ten largest stocks on each exchange. Then, we’ll eliminate the outliers – the lowest and highest P/E ratio. Finally, we average the P/E ratios of the eight or so remaining stocks. You can see the results of all this number-crunching below:

P/E Ratios of African Stock Markets
ExchangePrice/Earnings Ratio (Avg 10 Largest Stocks)
Uganda Securities Exchange8.39
Namibian Stock Exchange9.40
BRVM (Côte d'Ivoire Stocks Only)10.63
Botswana Stock Exchange11.08
Lusaka Stock Exchange13.27
Nairobi Securities Exchange14.33
Zimbabwe Stock Exchange14.35
Stock Exchange of Mauritius15.08
Ghana Stock Exchange17.51
Johannesburg Stock Exchange17.85
Nigerian Stock Exchange20.64

In terms of earnings multiples, Ugandan and Namibian stocks look darn cheap. But I’d much rather own a Ugandan stock sporting an 8 P/E than a Namibian one with the same ratio. Why? Because Uganda’s economy is forecast to grow so much faster.

To assess the best combination of growth and value, we divide each market’s P/E ratio by its home economy’s forecast growth rate. This market PEG ratio is shown in the table below.

Balancing Growth and Value
ExchangePrice/Earnings/Growth Ratio
BRVM (Côte d'Ivoire Stocks Only)1.35
Uganda Securities Exchange1.36
Lusaka Stock Exchange1.69
Namibian Stock Exchange2.25
Nairobi Securities Exchange2.33
Botswana Stock Exchange2.59
Zimbabwe Stock Exchange2.65
Ghana Stock Exchange2.69
Nigerian Stock Exchange2.93
Stock Exchange of Mauritius3.52
Johannesburg Stock Exchange5.62

So, our model suggests Cote d’Ivoire, Uganda, and Zambia are attractive markets at the moment, while stock bargains will be more scarce on the Johannesburg Stock Exchange and Stock Exchange of Mauritius.

It’s interesting to note that most African markets are more expensive now than they were 13 months ago. So, we probably won’t enjoy the eye-popping performance from African indexes that we’ve enjoyed over the past couple years.

Over to You

Does the forecast sound plausible? Which African market looks the cheapest and/or dearest to you? Let us know in the comments!

Related Reading

How to Invest on the Lusaka Stock Exchange
How to Invest on the BRVM
How to Invest on the Uganda Securities Exchange



  1. Tony Njeru says:

    The way you calculated those PE rankings is pretty shady. You took only 8 stocks to represent entire exchanges? Obviously those are all outliers in and of themselves, especially in a country like SA where so many stocks are listed on their exchange.

    • Hi Tony,

      You’re right that it would be better to include all listed firms in the P/E calculation. I simply didn’t have the time or energy to do so because these ratios aren’t readily available for many companies.

      Even so, I think this small sample size is sufficient to get a sense of each exchange’s overall valuation. The 10 largest South African stocks account for roughly two-thirds of total market capitalization and trade volume even though there are hundreds of stocks listed on the Johannesburg Stock Exchange.

  2. hi Tony the zim market should b number 2 it has a USD return of 45%

  3. John Ojal says:

    Hi Ryan,
    As always, your explanations are candid. Your model is sensible apart from the potential setback that Tony points out on P/E calculation. Its indeed mucky to come up with an average measure that is devoid of faults. I am just wondering how to indirectly consider the companies left out in PE calculation, perhaps adjust the PE from the top ten large Caps. by shrinking by the factor (Total Cap. of the top ten)/ (Total market Cap.). That way if say the top ten Caps. form 90% of the total market capitalization then the PE from them wont be adjusted much relative to a capital market where the top ten Caps form say 60% of total market capitalization. This idea would assume that the top ten Caps. are generally sold at a premium relative to the rest of the companies listed, which might not be true. The best situation is where all the information is readily available on PE of all listed companies as you say.

    That said, continue the good work.

  4. Very good insight.I am actually impressed by the good performance of the Nigerian Stock Exchange

  5. Hi Ryan,

    This is interesting data that you’ve posted here. I’m considering deeper research in African Equities, but I’d like to know your opinion on the best Stock exchange in terms of liquidity and ease of operations.



    • Thanks, Vikrant. For liquidity and ease of investing, you can’t beat the Johannesburg Stock Exchange at this point. If you’d prefer something a little further afield, try Nigeria, Kenya, Mauritius, or Zimbabwe.

      Happy investing!

  6. dipsy kuria says:

    Nairobi stock exchange is in the long run likely to be more resilient especially if our political processes remain sane. I’m so optimistic on this country.

  7. That was interesting research. I do believe it is fair to say that many of the stocks in Africa will be “mispriced” from a company performance perspective, simply because the regulatory environment they operate in is not seen as very reliable by outside investors. Additionally, Africa itself does not have a liquid enough domestic market to appropriately price their own stocks – outside of JoBurg, of course.

  8. Njeri Waiganjo says:

    Hi Ryan,

    I like the data you’ve compiled here.
    Whats your advice for a first time offshore investor intending to buy into a real estate stock in the Zambian Exchange?

  9. Can you say something about the Dar es Salaam stock exchange?

    • Hi Abas,

      I didn’t include the Dar exchange because of its restrictions on foreign investment, but if we disregard them, the exchange ranks pretty well on this list.

      Current forecasts indicate Tanzania’s will grow in the 6-7% range and the DSE’s largest stocks trade at earnings multiple’s between 10 and 15. This gives it an aggregate PEG ratio of approximately 2. Not quite as cheap as the top three markets listed here, but still showing some value.

      • Abas Sapi says:

        Hi Ryan,
        I hear now a company called Swala Oil & Gas will list onto the Dar Stock exchange in March this year. What are investment prospects for this company in Tanzania?

  10. Francois Janse Van Vuuren says:

    Zim needs to be watched. This is the country with unusual deposits of resources. The politics forced it under the radar, but it is boiling up there. People from south keep this to themselves.

  11. Abas Sapi says:

    Which companies will do well in the Dar Exchange this year?

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