Admittedly, when we observe the period of transformation that Mauritius is going through at the moment, we are entitled to wonder if invest in the Mauritius Stock Exchange is a really good idea.
Structurally declining growth?
Let’s be realistic. The economic pillars of Mauritius 25 years ago are:
- in the midst of a cash flow crisis, such as tourism
- in reconversion, like sugar
- or non-competitive because of the cost of labor, such as textiles
Today alone financial services continue to grow, despite the scheduled end of the benefits associated with double taxation treaties. And the short-term future of the financial sector clearly hinges on outsourcing.
Consequently, in order to maintain a decent growth rate, the private sector and the Government have the same vision to improve the living environment. By transforming the transport infrastructure and by facilitating the development of smart cities otherwise known as “smart cities”.
The graph below shows the progression of the SEMTRI index of the Mauritius Stock Exchange over the last 5 years, compared to the US S & P500 index.
We observe that the performance of SEMTRI is only 3% per year (or three times less than the 9% per year of the S & P500). Against nearly 16% per year on average since the start of the stock market in 1989 to date. In other words, yes, investing in the stock market remains – globally and in other latitudes – always a good idea.
Since 2014, investors have significantly reduced their investments in equities listed in Mauritius. For example close to Rs. 6 billion net sales from 2018 to 2020.
And the explanation lies in large part in the structural changes that we have just mentioned.
A purely local situation?
Is Mauritius alone to experience this kind of transformation or is it a global phenomenon?
The answer is yes: ALL the countries of the world are today facing major structural changes.
We must especially not underestimate the significance of the election of Donald Trump, or the consequences of Brexit. As well as the demonstrations in France of yellow vests or those of opponents of Chinese law in Hong Kong. People everywhere are seeing their purchasing power drop. Because wages are not increasing, taxes are increasing and real estate (and therefore housing) is more and more expensive.
Agriculture, in the United States or in Brazil, is of intensity totally opposed to the products resulting from the organic culture that consumers would like to buy. And “historic” industries are collapsing one after the other. As in the case of the automotive industry, faced with the change of direction towards electric.
Today, increases in corporate profits stem only from productivity gains resulting from technological progress. Without which in reality global growth would be almost zero, apart from Covid-19.
Should you invest in the Mauritius Stock Exchange?
Sir John Templeton, who was one of the greatest investors of the 20th century, recommended investing in stocks during periods of “ maximum pessimism “.
I believe that in the case of Mauritius and by extension of the African continent, we are living in a period of extreme pessimism. So conducive, according to Sir Templeton, to stock market investment.
In this regard, it is also necessary to take note of 5 points which are very important in my opinion:
- The main change that the world is going through is linked consumption patterns. Inclusion, speed of delivery, and ecology are the keywords of this change
- Consumers in emerging markets outnumber Americans and Europeans. So they go influence significantly the consumption patterns of the coming decades
- Of the top 10 tech stocks today in terms of market capitalization, only two, Samsung and Alibaba, are not native to the United States
- The Mauritius private sector has proven its ability to seize investment opportunities. It is no coincidence that the annualized performance of the Mauritius Stock Exchange since its inception is close to 14% per year, following the 2020 debacle (-24%!)
- Investing in equities should always be understood in the very long term, ideally over twenty years. Because long periods of stagnation or even decline can occur. You have to try to build your portfolio, local and international, with a good method. And above all a lot of patience.
In summary, then, I firmly believe that yes, we must continue to invest in the Mauritius Stock Exchange.
But you have to do it with calm and serenity, as well as with the right working methods and the right tools. This is what we do every day at iPRO, in professionals experienced in financial markets. And that’s what our customers expect from us.
do not hesitate to contact us so that we can talk about it together.
Great Post Stephane. Mauritius stock market is the perfect place for vacation & trading meetings. Many traders feel safe trading from that stock market.
Dear George, thanks a lot for your comments. The Mauritius Stock Exchange achieved a tremendous 17% annualised rate of return during its first 30 years of existence, from 1989 to 2019. Unfortunately, over the last three years, the return has been negative, due to the multiple challenges faced by the country’s major economic pillars: sugar, textile, tourism and financial services. We continue to invest on the Mauritius Stock Exchange but we have lowered the weights, as growth prospects are vanishing and illiquidity has become a major problem. Hopefully, we will see the silver lining in the coming years. Take care, Stephane