Monthly Highlights: July 2010

•  West Africa contributed positively on back of gains in Nigeria and the Francophone region
•  Mauritius was this month’s best performing market
•  Southern Africa performed well on back of mining and resource related strength
 


West Africa contributed positively on back of gains in Nigeria and the Francophone region

West African equity markets advanced on back of gains in Nigeria and the Francophone region with the NSE ASI and BRVM Composite rising by +1.62% and +6.50% respectively. In Nigeria, half-year bank earnings stole the spotlight as balance sheets improved, cost-to-income ratios fell and NPL provisioning stabilized. We believe this will lead to increased risk appetite over the coming months with most management teams targeting 15 – 25% loan growth given the vigorous pipeline of blue-chip names in need of expansion capital. On the consumer side, Unilever, Nestle, UACN and Nigerian Breweries reported generally strong earnings despite weaker-than-expected sales which may be attributed to an overall lack of available credit to wholesalers and various distribution agents. Of particular note, Nestle Nigeria benefited from special credit arrangements which supported key distributors and allowed the company to drive revenues, improve margins and grow its PAT by +45.6% over the first half of the year. In Ghana, the GSE ASI (Ghana) declined by an additional -2.47% following last month’s poor performance. On the back of its twelfth straight monthly decline, Ghanaian inflation came in at 9.52% as the government achieved its stated target of single digit inflation by year end 2010. Earnings results were mixed with Unilever and Fan Milk reporting strong numbers whilst Accra Breweries and SG-SSB disappointed.

Mauritius was this month’s best performing market

East African equity markets performed well in July with the SEM-7 (Mauritius), NSE 20 (Kenya) and USE ASI (Uganda) rising by +7.66%, +4.13% and +1.19% respectively. In Kenya, we saw increased foreign buying as equity markets rallied to a two-year high amid promise of increased political stability following a favorable outcome at next month’s political referendum. On the earnings front, we saw strong half-year results from the banking sector with Equity Bank and KCB leading the way. BAT Kenya also delivered encouraging numbers whilst KenolKobil turned the corner from last year’s loss. Although Safaricom appears to be deftly managing the transition away from retiring CEO Michael Joseph, we remain cautious amid intensifying competition from Bharti. Shifting to Mauritius, a +6.65% rise in the Euro fueled positive sentiment despite disappointing first half results from bellwether Sun Resorts. In other action, the DSEI (Tanzania) declined by -3.75% as corporate demand and speculative USD buying fueled continued TZS depreciation.

Southern Africa performed well on back of mining and resource related strength

In Southern Africa, we noted positive performance across the board with the Gabarone DCI (Botswana) up +5.25%, LuSE ASI (Zambia) up +3.65%, ZSE Industrials Index (Zimbabwe) up +2.71% and Malawi DCI up +0.59%. In Zambia, the macro picture appears to be deteriorating somewhat as inflation rose for the first month in five and copper exports declining on back of weaker demand from China. Nevertheless, Zambia continues to benefit from increased FDI as evidenced by this month’s USD 53 million health care grant from China and USD 25 million IFC loan to Zanaco. In aggregate, we estimate that Zambia attracted over USD 2 billion in FDI over the first six months of 2010. Shifting to Botswana, equity markets improved amid declining inflation and the recovery in diamond exports. In Zimbabwe, the Reserve Bank of Zimbabwe removed the statutory reserve requirement and adjusted the cash ratio threshold such that the average excess reserve for banks is expected to decline from 23% to 8%. The net effect of this adjustment will be a liquidity injection of approximately USD 500 million as the money multiplier rises from 3.0 to 4.3. Furthermore, the Kimberly Process Certification Scheme gave Zimbabwe clearance to sell its estimated USD 2.4 billion inventory of diamonds via auction in early August. Yet despite these positive economic catalysts, earnings results in Zimbabwe continue to disappoint with AICO and Bindura each posting losses.

 

 

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