A Step Forward and Back

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Investing in developing markets is not for the fainthearted. So it should come as no surprise that Afro-Caribbean equities took a step back from mid-June to mid-July after modest gains in the second quarter.

From Botswana to Trinidad, equities slipped after price-to-earnings ratios made them more expensive for new investors, while old investors pulled out money from their stock funds for the first time since March amid concern that a global recovery will be a painfully slow process. Peter Liao, a spokesman for New York investment house Van Eck Global, says returns for his African fund has flattened over the past month, although capital inflows are up $2 million. Year to date, the fund is up 25 percent, he added.

By July 20, Morgan Stanley Capital International’s frontier-markets index had dropped nearly 6 percent from its 2009 high on June 15, after the World Bank predicted the global economy will contract 2.9 percent this year. The bank warned of “increasingly grave economic prospects” for developing nations amid reduced capital inflows from exports, remittances and foreign direct investment.

In Trinidad and Tobago, those concerns have taken the twin islands’ main index a peg down, with demand easing for commodity products such as liquefied natural gas, or LNG. A recovery there won’t come until the U.S. economy recovers, says Ewart Williams, the country’s central bank chief.

Trading volume in the Barbados Stock Exchange has reduced to a trickle and the index remains flat in July, thanks to global recession. As a result, most investors now take positions in the fixed income security, while those with cash are taking advantage of the situation to hunt for deals, says Terry Williams, one of the supervisors at the bourse. The same thing has happened in Jamaica, where exports have also fallen sharply although a small growth in the main index was seen.

The Nigerian index slumped with the falling price of oil, which accounts for 90 percent of its export earnings. While still the world’s worst performer in 2009, the index may gain as much as 15 percent by year end if oil prices continue to rise and borrowing costs ease, analysts said.

On the plus side, Egyptian stocks rose sharply after recent declines left equities attractive. Output from cement firms shot up 26 percent in the first half of the year and a ban on cement exports was extended until October 2010 because of growing domestic demand.

Both Kenyan and South African indexes posted modest gains in mid-July, with FTSE/JSE Africa All Share Index up 5.5 percent for the month. Holiday bookings during both countries’ tourist season have picked up, especially in South Africa, ahead of the World Cup soccer tournament next year.