By Chukwumah Kelechukwu
Emerging Markets of Africa are reeling from escalating tariff war between the US and China, two leading economies mutually relevant to Africa and Asia.
Across Africa and Asia, risk-averse investors sell off shares in fear of potential impact of US-China tariff battle seen by analysts as having far-reaching impact sooner than expected.
The impact is adverse on the Nigeria’s capital market where stocks have hit record low on the first two trading days of the week after China retaliated to increased U.S. tariffs on Monday, May 13, 2019.
Beijing announced a rise in tariffs on $60 billion of US goods starting on June 1st in retaliation for Washington’s decision to hike its own levies on $200 billion in Chinese imports, a tit-for-tat approach that prompted the US to stack up fresh levies on additional $300billion of Chinese products.
Between Monday, May 13 and Tuesday, May 14, equity investors across emerging markets of Africa booked significant losses despite Trump’s hint of possibly reaching a deal with China in fresh talks after initial talks failed.
The Johannesburg All Share Index (JALSH-All Share Index) fell -98.00 basis points or 0.66 percent in early trade on Tuesday, May 14 with trading progressively improving real time, driven perhaps by Trump’s hint of possible deal with Beijing.
The JALSH-All Share has increased 5231 points or 10.20 percent since the beginning of 2019, on improving economic indices and investor confidence.
The Nigerian Stock Exchange was not spared as price value of shares depreciated by N164.031billion ($536.04million) between Monday and Tuesday. From opening capitalisation of N10.842trillion (35.43million) on Monday to N10.678trillion ($34.89billion) at the close of trading on Tuesday, May 14, 2019.
The NSE ALSI which measures performance of stocks fell from opening 28, 847.81 basis points on Monday to 28422.76 basis points on Tuesday representing 1.5 percent decline.
The market’s year-to-date (ytd) percentage decline stood at about -9.15 percent as of Tuesday.
What escalation of US-China tariff war implies
Analysts foresee volatile activities across emerging markets if escalation of US-China tariff war goes on, with Europe also preparing to hit back if the U.S. puts auto tariffs into force this month.
Sonja Gibbs, senior director at the Institute of International Finance in Washington, said “Escalation of trade conflict is likely to prompt a much sharper focus on EM country-specific factors, including exposure to China, potential impact of tariffs on supply chains and political risk.”
In that case, countries with exposure to China like Nigeria, South Africa, Angola, South Sudan, and most other African countries in commerce and trade relations with China really have to suffer the impact.
Per Hammarlund, the chief emerging-market strategist at SEB AB in Stockholm, ssid “We have entered into what will likely be a period of a few months of weak risk appetite, which will weigh on emerging markets (EM) assets, primarily equities, but also currencies.”
Hammarlund is negative on EM in the near- to medium-term, but thinks a trade deal will eventually be reached this year, allowing EM assets to end the year on a positive note.
But low prices of equities going bearish at the wake of escalating trade war, after all, offer cheap entry opportunity for anticipated bumper returns on investment when the resolution is reached, and markets bounce back.
According to Professor Uche Uwaleke, a Professor of Finance & Capital Market, and Head of Banking and Finance Department, Nasarawa State University, Keffi, Nigeria market’s price earning (PE) ratio, a measure of stocks viability, ranks lower than PE ratio index of most global investment firms, a fact that has created opportunity for discerning investors.
He expressed hope that despite tariff war, declining trend of yield in the US will likely bring about capital flow to emerging markets, and urged equity investors to take advantage of low stocks prices to position in choice equities.
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