Bull or Bear?

After the rally of 2009, uncertainties for the next nine months are now curbing gains for African and Caribbean markets. There are two opposing worldviews. One holds that the economic recovery underway is the start of a bull market. The other predicts a bearish stretch because the markets are overbought and the recovery is fragile.

So what?s an investor to do? Given strong economic growth overseas, investing solely in U.S. stocks no longer makes sense. Emerging markets are outpacing developed economies in the recovery. Investors, therefore, need to think globally, and there are countries in Africa and the Caribbean that can get you better returns.

First off, let?s consider Africa. With global demand for commodities up, Africa?s macroeconomic outlook continues to improve. We now have an average??? growth rate of 6 percent in 2010, with forecasts of it accelerating to 7 percent in 2011. Foreign investment is picking up in tandem with tentative global economy.

Yet that alone won?t bring good returns for equity investors. Increases in interest rates remain a downside risk for the markets unless governments reign in fiscal deficits. In Ghana and Uganda, for example, the main problem is managing expectations as they move toward becoming Africa?s newest oil producers next year. Oil profits won?t mean more fiscal space for new programs and projects.

In South Africa, our outlook for monetary policy is revised following an unexpected 50 basis-points interest rate cut in late March. The rate cut rallied bonds, pushing yields to an 11-month low, as investors bought debt. Johannesburg?s main index fell 1 percent in March after gains in previous months.

Kenya?s main index jumped 5 percent after the government announced plans to promote policies that will target inflation at 5 percent. Inflation accelerated to 5.2 percent in February from 4.7 percent for January.

Agricultural production is picking up after rains ended a two-year drought, with tea output up 61 percent in February from a year earlier. Kenya is the world?s largest exporter of black tea and a major supplier of horticultural products to Europe.

The Caribbean economies are emerging from the aftershock of the global recession and we expect tourism to pick up. Jamaica is expecting a record high of 2 million visitors by the year?s end. The rebound in oil and gas markets would also boost growth and the market in Trinidad and Tobago. Mergers and acquisitions (M&A) are picking up in the region, with Barbados?s largest credit union closer to acquiring a St. Lucia-based mortgage and finance firm.

Meantime, a move toward high-margin food products is a long-term goal for the region?s fruit and vegetable producers. Jamaica?s JPG has diversified away from fresh bananas to become a vertically integrated producer of fruit-based food and drinks. Liberalization of the Bahamian telecoms market also looks closer.