Monthly Highlights: July 2008

•  East African equities declined amid rising food & energy prices
•  Nigerian equity markets remain heavy
•  Zimbabwe rose sharply amid speculation of political resolution
 

East African equities declined amid rising food & energy prices

Investors have had difficulty coping with the twin threats of higher oil and food prices as the underlying trend of inflation continues to rise. East African equity markets plummeted in July with the NSE20 (Kenya), USE All share (Uganda), and SEMDEX (Mauritius) declining by -9.56%, -10.61% and -6.03%, respectively. The Tanzanian Composite was the lone exception as it registered a slightly positive +0.83% gain on the month. Yet despite overall market weakness, we remain bullish on long-term prospects for East Africa as the generally high level of foreign direct investment holds significant potential for continued economic growth. Of note, Kenyan economic growth remains sluggish with the Central Bank of Kenya estimating slower GDP growth (approximately +4.5% YoY) before returning to double-digits in 2010.

Nigerian equity markets remain heavy

West African equity markets came in mixed with the Nigeria All Share declining -5.07% whilst the GSE All Share (Ghana) and BRVM Composite (Francophone Africa) rose by +2.94% and +1.54%, respectively. Ghana continues to perform favorably as rising food and energy prices have failed to deter investors from their bullish outlook on the economy. While many point to the recent discovery of oil, we are equally encouraged by recent infrastructure spending which has gone some way toward shoring up the nation’s recurring energy problems. Returns from agricultural exports have also assisted in mitigating the impact of rising inflation and a rapidly appreciating Ghanaian Cedi. The Nigeria All Share underperformed as investors continue to shy away from Sub-Saharan Africa’s second largest economy. Deteriorating investor sentiment is primarily the result of recent legislative changes within the Nigerian capital markets and the threat of ongoing terrorist attacks across the Niger Delta. Despite the weaker tone, the Nigerian outlook remains positive, and we have grown increasingly comfortable with prevailing market valuations.

Zimbabwe rose sharply amid speculation of political resolution

Southern Africa performed well with Botswana, Namibia, Swaziland and Malawi contributing nicely on the month. In Zambia, the Kwacha fell -10.1% as concerns surrounding the health of President Mwanawasa led to negative currency speculation. The sell-off extended to Zambian equities where we witnessed significant profit-taking with investors looking to scale back their overall exposure. In Zimbabwe, the nation’s long-suffering financial markets bounced strongly amid speculation that government officials are nearing resolution of the recent political standoff. We are monitoring this situation closely as resolution of the current impasse will likely have a significant impact on valuations across the Zimbabwean capital markets.