From Reuters

A two-year rally in frontier African stocks, which has withstood the Nairobi shopping mall attack, violence in the Central African Republic and fighting in South Sudan, is showing signs of fatigue, pointing to muted gains this year.

The MSCI Africa index, which excludes South Africa but includes three North African markets, has risen more than 60 percent over the past two years as investors sought plays on the rising purchasing power of middle class consumers in the world’s fastest-growing continent.

But inflows into sub-Saharan African equity funds have slowed from more than $3 billion in 2012 to $1 billion last year, according to Boston-based fund tracker EPFR.

With stock valuations in frontier markets now higher than their emerging market peers, investors will need to look beyond blue-chip companies in major markets like Kenya to smaller companies or less familiar markets like Botswana to find value this year.

“I do not think we are going to see a correction, but I do not think we are going to see the same kind of rally,” said Ronak Gadhia, equity analyst at frontier markets broker Exotix, who focuses on sub-Saharan African financial stocks.

The MSCI Africa index rose 18 percent last year after a 38 percent leap in 2012.

Some of the best performers have been in Nigeria, with GT Bank surging 90 percent over the past two years while Nestle Nigeria has nearly tripled.

Written by Carolyn Cohn | Read more at Reuters