The long-awaited trade agreement between the United States and China would turn the African continent into a land of opportunity for bond and equity investors.
That’s according to Bank of America (BofA) strategists David Hauner and Claudio Irigoyen. They wrote in a client note seen by Bloomberg: “At a minimum, we think the removal of tariff and recession fears at least until the November 2020 US elections should lead to some restocking effect and green shoots by the first quarter.”
The strategists said that among the main emerging-market beneficiaries would be “some of the less loved currency and high-yield markets, the African ‘China plays.’”
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They have explained that a trade deal would reduce the risk of a strengthening dollar, supporting emerging-market currencies and high-yield debt. Some currencies, including South Africa’s rand, would also benefit from equity inflows, given that stocks are the asset class most likely to profit from an economic rebound.
BofA also predicted the biggest gainers if the US and China reach a trade agreement.
“We also like Africa, where several external credits have lagged amidst the global growth concerns: Kenya, Nigeria and South Africa,” it said.
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South African President Cyril Ramaphosa said in an interview with Bloomberg TV that a deal between the world’s two largest economies would greatly benefit South Africa.
On Thursday, China and the US agreed to proportionally roll back mutual punitive tariffs with the initial phase of a trade deal expected to be signed in the coming weeks. The trade row between the two countries has been going on for over a year, resulting in multiple rounds of tit-for-tat tariffs and restrictions.
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