South Africa - A Gateway to the wider Continent for investors

US president Donald Trump

The African continent as a whole certainly has great potential for growth, with such amazing untapped natural resources and many of its economies still undeveloped. Many believe that Africa will be the next up and coming continent and, with three of the world's five fastest-growing economies located in Africa, it certainly looks like this could be the case.

Even the US president Donald Trump recently remarked "Africa has tremendous business potential" and "I have so many friends going to your countries trying to get rich" to more than a dozen African leaders during a luncheon at the United Nations.

South Africa a Gateway for Investors

South Africa has underperformed recently with the World Bank slashing its growth outlook for this year to 0.6% from 1.1%. Even 1.1% growth is slow in comparison to many of the continents emerging economies. Despite this, many international companies still see South Africa as a great place to gain exposure to the broader African continent.

The Johannesburg Stock Exchange is the largest stock exchange in Africa and is highly regulated. The South Africa 40 index consists of the top 40 listed companies trading on the Johannesburg Stock Exchange. Many of these companies have direct lines or existing operations in other fast-growing African nations. The combination of high security and its status as Africa's leading stock exchange is why so many multinational companies choose to base their operations in South Africa and list on the Johannesburg Stock Exchange.

What is the Current Situation?

Stock markets around the world are somewhat correlated, often driven by the biggest markets like the USA and China. However, during bullish phases of global stock markets, you always have the leading and the laggard stock exchanges. If Africa becomes the fastest-growing continent, then you could expect the Johannesburg Stock Exchange to become a top performing exchange, with the South Africa 40 index and its constituent stocks benefiting from that.

Currently, the South Africa 40 index does look to be in a bullish position. The price of the South Africa 40 index was stuck in a range for most of the last two years but moved higher out of this at the end of July 2017. The price is now holding above this previous range and, if it can continue to do so, then a move higher in the near future is possible.

South Africa's stock exchanges may currently be under the radar of much of the international investment community, except for those who live in South Africa or nearby surrounding countries. However, due to the nature of the investment game, investors are always looking for the next up-and-coming markets. If a buzz starts to surround the African continent and its growth, then you could see sharp rises in its associated stock exchanges. It's often news, sentiment, and the underlying fundamentals of a market that can drive these changes in supply and demand.