Regional Bourse Unfazed By Political Risk

BMI View : Francophone West Africa's Bourse Regionale des Valeurs Mobilieres has proved highly resilient to recent political crises, and we do not believe that security threats to the region are likely to slow an on-going rally. Given our positive outlook on Sonatel, a Senegalese-based telecommunications firm that makes up 39.5% of the bourse's total market capitalisation, BMI believes that the index will continue to perform strongly.

While many equity markets are sent spiralling downwards by rumours of political instability, West Africa's Bourse Regionale des Valeurs Mobilieres (BVRM) remained stable in April 2011 even as fighting came within blocks of the market's headquarters in Abidjan. BMI believes this stoic response to political risk is likely to remain a notable characteristic of the index, and we predict that security threats in regional states are unlikely to slow the bourse's current rally .

What Crisis?
UEMOA - BRVM Composite Index, Regional Political Crises

There are, broadly speaking, three reasons for the BVRM's equanimity in the face of political risk. The first is that, as a diversified regional index hosting stocks from eight largely unconnected economies, the BVRM is less affected by crises in a given country than a national stock market would be. The region's crisis-prone states are mostly smaller economies with few firms listed on the index.

Towering Over The Competition
Sonatel - Share Of BRVM Market Capitalisation (LHS) & Annual Revenue (RHS)

Second, the BVRM Composite Index is highly dependent on a few blue chip stocks that make up the majority of the bourse. The most significant of these is Sonatel , a Senegal-based telecommunications firm which makes up 39.5% of t he BRVM's market capitalisation.

The Dakar-based firm is well placed to weather West Africa's persistent instability partially because it earns 61.9% of its sales in Senegal, one of Africa's most stable economies. BMI 's telecoms team holds a positive view of the Senegalese telecom market, as we see strong potential for growth in broadband subscriptions.

Even where Sonatel and other BVRM-listed firms work in the region's less stable countries, they remain relatively insulated from political risks. Sonatel earned 28.5% of its 2012 sales in Mali, a figure largely unaffected by that country's on-going political and security crisis.

Unlike London-listed Randgold Resources , Sonatel 's Malian operations did not struggle with the demands of anxious European investors, vulnerable supply lines, and calls for Western staff to leave the country. Most importantly, Sonatel serves the local population rather than risk-averse foreign clients ; if anything a crisis will increase the demand for rapid communications in the country.

The Only Game In Town

Third, the lack of alternate investment options mean that capital flight is less likely than it would be in a market with a more developed financial system. The bourse's few blue chip stocks are in the enviable position of attracting investment both by choice and by default due to the paucity of other options available. Local debt markets remain shallow and there are few other options for the region's developing middle class.


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