Malawi is one of the least developed countries in the world, a small country in Africa that is not on the radar of most people or investors. It is also home to the Malawi Stock Exchange, where the Malawi All Shares Index returned 108.3% in 2013 in local currency terms, making it one of the best performing equity indices in the world last year. It is off to a strong start in 2014 as well, so we decided to find out more about this country, particularly how to invest in Malawi stocks.
Country Snapshot
- Population: about 16.5 million in 2013
- Capital: Lilongwe, but the finance/commercial capital is Blantyre
- GDP per Capita: Under $1000
- Economic drivers: Agricultural, tobacco is their largest export, worth over 50% of their total exports
- Real GDP Growth: 5.5%/6.1% in 2013/2014 according to the ADB
- Inflation: 24.6% in Feb 2014, down from 36.4% in 2013, according tot he National Statistical Office and Reserve Bank of Malawi
At first glance, Malawi is not the most obvious of investment destinations. GDP growth rates are sub par for a country starting from such a low base, and inflation rates run incredibly high even if they have come off this year. Malawi is also very reliant on tobacco exports in an age of e-cigarettes, an issue we touched on last year. On the other hand, stock market performance is less centered on absolute GDP growth, and more on population growth potential pushing aggregate real GDP higher. In this regard Malawi looks much better, with GDP growth up 1% each year over the past few years and a population that is expected to triple by 2050.
Malawi Markets:
- Main exchange is the Malawi Stock Exchange (MSE), based in Blantyre
- Main index is the Malawi All Shares Index (MASI)
- Fourteen companies listed on the exchange:13 domestic and one on the foreign board (Old Mutual)
- First listing was NICO Holdings in November 1996, most recent listing was Telekom Networks Malawi in November 2008
- Market Cap of about $1.3 bn USD (just under 540 trillion MWK) as of Q1 2014, excluding non-Malawi foreign board shares
- Average daily turnover of about $140,000 USD in 2013, but about $35,000 USD so far in 2014
- Local currency is the Malawi Kwacha (MWK): depreciated by 22.2% vs the USD in 2013, but appreciated in Q1 of 2014 by 5.7% due to tobacco auction inflows
The Malawi All Shares Index:
Performance of USD/MWK over the past five years:
From the graph it can be seen that before 2013, the Malawi equity markets were relatively sleepy before exploding on higher volumes in 2013, possibly as a way for investors to retain value despite a falling currency. The currency has been volatile since a 49% devaluation in May 2012 due to low tobacco export revenues and aimed at bolstering foreign aid.
Malawi Stock Exchange Overview
These are the 14 companies listed on the MSE:
- The index is heavy on financials, with 9 out of the 14 falling into this sector
- There are no energy, materials, health care, IT, or utilities companies to invest in yet
- Illovo is the largest stock by market cap on the exchange, and has rallied over 90% since the beginning of 2013
- Telekom Networks Malawi has led the surge this year but is still only the third best performer despite having the second greatest volumes
- National Bank of Malawi has rocketed higher in the past five quarters by tripling in value
- Only two companies have lost value since 2013: Malawi Property Investment Co and Real Insurance Ltd
Conclusion
We were surprised at the long history of the stock exchange and the high number of listings on it in one of the least developed countries in the world. We have not looked into valuations, but it looks like the rally of 2013 was spurred by the currency devaluation in 2012. This means that while its performance has still been great, in USD terms the two year returns are more muted. We see some real challenges ahead for Malawi and do not expect currency appreciation to continue, but we like the potential of this market that is on the very edge of frontier markets.
