Equities or stocks listed on the Ghana Stock Exchange (GSE) is the most preferred investment instrument for portfolio investors investing in the country.
Per a study conducted by the Standard Bank Group on investment flows into the Continent, 43% of portfolio investors prefer to invest in listed equities on the local bourse.
Following listed equities as the next most preferred investment instrument is government bonds issued in the local currency.
Eurobonds, American Depository Receipts (ADRs) and corporate bonds issued in the local currency were the third, fourth and fifth most preferred investment instruments by global portfolio investors.
American Depository Receipts (ADRs) offer US investors a means to gain exposure to non-US stocks without dealing with the complexities of foreign stock markets.
Private equity was the least preferred investment for investors.
In a sharp contrast, majority of strategic investors involved in the country’s capital market, prefer to invest in private equity to the other forms of investment instruments.
Only a few number of strategic investors were interested in investing in government bonds issued in the local currency, Eurobonds and listed equities on the local bourse.
The World to Africa report, is an industry-wide study conducted by Standard Bank Group and the ValueExchange, in cooperation with the Bank of New York Mellon, Africa Venture Capital Association (AVCA), South African Venture Capital Association (SAVCA), Global Custodian and MiDA.
According to the report, global investors are set to see a significant increase in their African investments, with 76% either studying the markets, preparing for entry or readying to deploy additional investments into the continent.
Although volumes of Africa-bound investments are yet to return to pre-pandemic levels, the study reveals that 34% of investors plan to increase their investments into Africa in 2022 – creating a major injection of liquidity into key markets.
Whilst the majority of investors are focusing on South Africa, Nigeria and Kenya for these increased flows, sub-Saharan markets such as Botswana, Zambia and Namibia look set to benefit from growing investor confidence.
ESG and Fintech seen as major drivers
Projected investment returns from African markets is the key driver for foreign investment flows, but the appeal of Africa as an ESG-friendly destination is also driving increased interest. European investors and those from the Asia-Pacific region, who see ESG as the second-most important driver of Africa flows today, lead the way in this trend.
“This survey draws on views from over 220 institutions to give a uniquely comprehensive view of the drivers, challenges and triggers that Global Portfolio Investors face when looking at African markets. Ghana’s capital market is steadily developing and increasingly playing a pivotal role in attracting long-term capital for financing economic activities,” said William Sowah, Head, Investor Services, Stanbic Bank Ghana.
He added that, “To continue on the upward trajectory, stakeholders from the industry need to collaborate to discover new horizons that will deliver prospects for Ghana’s Capital Market. The survey findings awaken our market to the need to focus on removing liquidity impediments and hasten the pace of reforms.”
These investments are being directed into Africa’s rapidly growing technology and fintech sectors. Whilst portfolio investors are focused on govt bonds and a basket of technology, infrastructure and natural resource stocks, the appeal of fintech as the main target for all profiles of investment is clear – particularly for large North American investors seeking global diversification.
FX liquidity a core challenge
Despite the increased attention on Africa, not all global investors are ready to turn to the continent, 41% of new investors to Africa (and 27% of existing Africa-investors) see the current state of the continent’s foreign exchange regimes as being a core obstacle to investing. The research is clear that global investors will be strongly drawn toward countries that take action to drive local market reforms to increase and stabilise liquidity in the near future.
“The results of this research proves that the continent is full of investment opportunities that will drive Africa’s growth, and the global investment community has recognised this and is ready to realise Africa’s potential,” says Chaitanya.