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in the wake of the anticipated global economic slowdown triggered by poor US economic data and a ratings downgrade.
Foreign investors on the exchange now fear further investment in capital market on the back of the mounting Europe’s debt crisis.
Financial markets in most advanced and emerging economies experienced dramatic decline triggered by identical US-EU debt worries.
ZSE, which is dominated by foreign investors, has since last week experienced bearish trades as investors have withdrawn from the stock market to invest in safe havens like the gold bonds, which have got real value.
However, analysts say based on the past experience, most African economies have minimum exposure to the toxic financial markets in the advanced nations.
A local broking firm, BancABC, said the continent is not immune to a possible financial crisis, given the heterogeneity of African economies, the crisis is bound to affect nations in varying degrees.
“Another round of financial crisis will be felt through both direct and indirect channels. Nonetheless, direct impact of the crisis is usually less severe as most African economies are lowly integrated into the global economy.
“They have smaller interbank and capital markets and they boast tight restrictions on new financial products,” the firm said.
The global economic slowdown is likely to see bank balance sheets, which often tend to deteriorate with level of non-performing loans rising. African markets could also be vulnerable to the contagion effect arising from foreign ownership of banks.
The US was downgraded from a top-notch AAA+ rating to AA+ with a negative outlook, citing concerns about budget deficits.
The downgrade also casts a shadow on the country’s economic recovery prospects as well as the pace of the global recovery.
Similar to the start of the 2008-2009 credit crisis, these developments triggered a broad-based sell-off of risky assets such as stocks, commodities and bonds of countries with fiscal difficulties.
Going forward, strong downward pressure on both the euro and the US dollar exchange rate will more likely become a contest of the weak currencies.
Since the beginning of the new millennium, workers’ remittances have been pivotal to the development of Sub-Saharan Africa having increased from US$4,6 billion in 2000 to US$20 billion in 2008.
There are fears that the financial crisis and the attendant global economic slowdown will reduce the flow of remittances to the region as African migrant workers in Europe, North America and Gulf states might be laid off and return home.