Gideon Boako

Should Africa’s emerging markets still be considered as a separate asset class?

ABSTRACT This article examines the correlation of Africa’s emerging markets regionally and globally using the Continuous Morlet Wavelet (CMW) transform. The superiority of this technique is that it is able to estimate correlation in a time-varying manner and derive all information about structural changes in the data through a phase difference technique. We find that Africa’s emerging equity markets are partially segmented regionally and globally. Although correlations may have increased over time, we suggest that emerging markets in Africa should still be considered as a separate asset class.

The Stock Market Development and Economic Growth Puzzle: Empirical Evidence from Africa

This chapter contributes to the unending debate on whether stock market development causes economic growth, or the former is a result of the latter, or the two are mutually causal. By using two measures of stock market development (i.e. turn-over ratios of domestic shares and market capitalizations (%) of domestic listed firms) and four indicators of economic performance (i.e. GDP growth, net FDI flows, gross savings, and capital formation), we find that the relationship between stock market development and economic growth in Africa is rather mute. Implicitly, the supply-leading and demand-following hypothesis, as well as the mutually causal theories, is not supported by these results. It stands to reason therefore that the effect of either stock market development on economic growth or the reverse in Africa may occur through some other economic and/or financial channels.

The impact of sovereign credit ratings on corporate credit ratings in South Africa

Purpose - The purpose of this paper is to examine the impact of sovereign credit ratings on corporations in South Africa by assessing whether the sovereign rating assigned to South Africa by credit rating agencies acts as a ceiling/constraint for credit ratings assigned to corporations that operate within the country. The question of whether sovereign ratings are significant in determining corporate ratings was also explored. Design/methodology/approach - To test the hypothesis regarding the rating of corporates relative to sovereigns, a longitudinal panel design was followed. The analysis employed fixed effects and generalized method of moments techniques. Findings - The main findings are that sovereign ratings both act as a ceiling for corporate ratings and are important determinants of corporate ratings in South Africa. The findings however indicated that company specific variables (accounting variables) are not significant in explaining credit risk ratings assigned to corporates. Research limitations/implications - This study only looked at the rating activity done by Standard and Poor’s (S&P). A possible further study could explore the hypothesis tested in this research using data from multiple rating agencies and contrast the results across different agencies. Future studies could also look at crisis periods and how the transfer risk discussed in this paper manifests during the transfer period. Practical implications - The results have implications for the borrowing costs incurred by corporates in South Africa when participating in the international debt market. The implication is that if the sovereign is poorly rated, the corporates may be limited in their ability to secure investor funding at competitive rates from the international financial markets. Thus, should South Africa be downgraded to non-investment grade by S&P, the implications may be that South African corporates on average may suffer the same fate. Originality/value - Extant literature predominantly utilizes foreign currency ratings. To the extent that this study uses local currency ratings, it adds a new dimension in the body of related studies.