Monthly Highlights: February 2010

•  West Africa posted solid returns on the month
•  East African equity returns declined on back of weakness in Mauritius
•  Southern Africa was broadly weaker on the month
 

West Africa posted solid returns on the month

West Africa was the strongest performing region in Sub-Saharan Africa as the NSE ASI (Nigeria) and BRVM Composite (Francophone) rose +2.1% and +2.0%, respectively. Although the GSE ASI (Ghana) declined by -1.2% on the month, the portfolio’s Ghanaian holdings contributed 24bp in positive attribution. In Nigeria, market sentiment was driven by the eventual return of President Umaru Yar’Adua. After weeks of speculation regarding his health, President Yar’Adua returned to Nigeria on the 23rd of February after more than three months in recovery. Although Yar’Adua has not made a public appearance as of yet, the President’s first official act was to endorse Vice President Jonathan Goodluck as acting president. We believe this is positive for the market as it reaffirms presidential authority and demonstrates Nigeria’s commitment to the constitutional process. Over the long run, we believe this is strongly positive for Nigeria despite a rather muted response from the equity markets to date. In other noteworthy news, Nigerian Breweries released earnings guidance for 1Q10 and also made a dividend announcement. The company's earnings announcement provided better-than-expected forward looking guidance whilst its dividend announcement brings the company’s dividend yield to 6%. Nestle Nigeria also made a dividend announcement although market reaction was unimpressive despite the company’s dividend yield of 5%. On the whole, market sentiment appears to be improving following a rough 2009 which included lower government earnings, higher inflation, higher interest rates and a devaluation of the Naira. In other action, the BRVM Composite posted strong returns on back of solid results from Sonatel which were in line with our internal forecasts. We remain encouraged by Sonatel’s forward looking growth prospects, and the company continues to pay a healthy dividend of approximately 10%.

East African equity returns declined on back of weakness in Mauritius

In East Africa, the SEM-7 (Mauritius) declined by -9.3% on the month and was the second worst performing market in our region. Earnings from tourism fell 13.4%, and tourism’s contribution to Mauritian GDP declined from 11.8% to 10.1% over the past year. We have seen poor numbers from most of the tourism-related entities and are still waiting for others to report. Tourism is the biggest foreign currency earner for the island and these numbers have had a strong negative impact on overall market sentiment. In Kenya, the region’s economic bellwether, political in-fighting dented investor sentiment across the country despite the NSE 20 rising by +0.9% on the month. The fragile alliance between President Kibaki’s Party of National Unity (PNU) and Prime Minister Odinga’s Orange Democratic Movement (ODM) was tested several times this month across a number of key issues. In fact, Odinga suspended two ministers on charges of corruption, only to see Kibaki reinstate them just a few hours later. The political system is beginning to show evidence of cracking as both parties have been under extraordinary pressure to introduce a rewritten constitution. Disagreement over critical laws aimed at limiting presidential power and curbing abuses of authority threaten to derail the entire process. Nevertheless, both parties have agreed to work toward an amicable solution, and this provided some much needed respite for otherwise volatile markets. In other action, the DSEI (Tanzania) and UGX ALSI (Uganda) fell by -2.5% and -3.8%, respectively.

Southern Africa was broadly weaker on the month

Looking to Southern Africa, Zimbabwe led all laggards with the ZSE Industrial and Mining Indices falling by -10.3% and -16.6%, respectively. Zimbabwe continues to be plagued by political uncertainty, with Mugabe’s ZANU-PF government calling for implementation of the 51% indigenization law and Tsvingirai’s MDC claiming that such legislation will not be implemented. Further, extremely attractive money market yields have sapped liquidity from the nation’s equity market. At present, the Zimbabwean money markets are currently yielding between 25%-30% pa for 30 and 90-day tenures. In other action, the LuSE ASI (Zambia), Namibia Local (Namibia) and Malawi DCI (Malawi) fell by -4.2%, -1.0% and -2.5%, respectively. The Gabarone DCI (Botswana) was the region’s lone bright spot, rising +2.5% on the month.