China–Africa stock market linkages and the global financial crisis

In this paper, we investigate the long-run linkages and short-run dynamics among China and five major African stock markets (South Africa, Morocco, Egypt, Nigeria and Kenya), with emphasis on the impact of the global financial crisis on the linkages and transmission mechanisms. In the pre-crisis and crisis era, we find convincing linkages among the stock markets, evidenced by the presence of cointegration and stronger dynamic price transmission. Our results show that the influence of China on the African stock markets became more noticeable during the crisis. Interestingly, after the crisis, the cointegration was lost as the China–Africa stock market linkages became significantly weakened. The influence of China on Africa’s stock markets—which was not in doubt prior to and during the crisis—became eroded after the crisis. Thus, our results suggest that Africa’s major stock markets have become less connected with China’s stock market post-crisis, even though China’s trade and other economic influence on Africa has grown—an outcome we attribute to a possible disconnect between Africa’s real economy and stock markets. Meanwhile, the decoupling of African and Chinese stock markets in the post-crisis period suggests that gains from international diversification exist in Africa for portfolio investors and asset managers with nontrivial exposure to China.