Global Asset Classes and Equity Markets’ Returns in Africa

Abstract

ABSTRACT Although newly-created alliances between African economies and top emerging markets may stimulate economic growth, the tendency to deepen integration across African markets could render African markets less resilient to global shocks as they are known. Notwithstanding, the financial market meltdown occasioned by the COVID-19 outbreak has resulted in intense commodity market volatility for which market participants in Africa have been cautioned about its persistence. Motivated by investors’ relentless search for safety assets and the ripple impact of the recent trade liberalisation in Africa, this thesis examined the interdependence, spillover connectedness, and information transfer between returns on global commodity classes and African equity markets. Hinged on available and comparable data, the research employed daily datasets – equity (Egypt, Ghana, Ivory Coast, Kenya, Malawi, Morocco, Namibia, Nigeria, South Africa, Tanzania, Uganda, Zambia, and Zimbabwe) and commodity (cocoa, coffee, copper, corn, crude oil, gold, natural gas, palladium, palm oil, rice, sugar, and soybeans) market indices – spanning from 22nd February 2010 to 4th February 2022. The findings from the study underscored high interdependence between commodity and African equities in the short term with idiosyncratic and contagious return spillovers. The effective transfer entropy results suggested high uncertainties with commodity-African equity investments although the markets are efficient in the medium-and-long term horizons. Regulators should deploy vibrant measures that could limit the creation or transmission of shocks across markets. Portfolio managers should deploy effective risk management strategies that capitalise on the changing roles of some assets as diversifiers, hedgers, and safe-havens across time horizons