Monthly Highlights: June 2020

•  West African equity markets performance was largely negative as Nigeria and Ghana underperformed while the Francophone region closed positive
•  East African markets recorded mixed performance as strength in Mauritius, Uganda and Tanzania was offset by weakness in Kenya and Rwanda
•  North African equities recorded positive returns across the region
•  Southern African equities recorded mixed returns with Zimbabwe and Malawi trading in positive territory while Zambia, Botswana and Namibia were weaker
 

African markets were mixed in June, with nine posting positive performances in dollar terms led by Zimbabwe (+73.72%) using OMIR, Malawi (+6.01%) and Morocco (+4.08%), whilst Nigeria (-3.07%), Namibia (-2.97%), and Ghana (-2.14%) were the biggest losers. Malawi’s positive returns came as Malawi’s opposition (Malawi Congress Party), leader Lazarus Chakwera was declared the winner of a re-run presidential election, a dramatic reversal of incumbent Peter Mutharika, of the ruling Democratic Progressive Party (DPP), discredited win in May 2019 citing irregularities. Lazarus Chakwera, secured the required majority, with 58.57% of the votes. In other economic news, the IMF revised GDP growth forecasts it made in April 2020, with sub-Saharan Africa GDP growth now expected at -3.2% in 2020 from -1.6% previously forecasted.

West African equity markets performance was largely negative as Nigeria and Ghana underperformed while the Francophone region closed positive

West African equity markets performance was largely negative as Nigeria and Ghana underperformed while the Francophone region closed positive. In Nigeria, the inflation rate surged to 12.4% in May for the ninth month straight as food prices continue to climb and the currency remains under pressure. The IMF revised GDP growth forecasts for Nigeria in 2020 to -5.4% from -3.4% previously forecasted, expecting Nigeria’s economy to rebound by +2.6% in 2021. Elsewhere, Nigerian banks plan to restructure over a third of loans after running into repayment problems due to the coronavirus pandemic, with the majority of the loans to be restructured in the manufacturing and general commerce sectors. On the earnings front, we digested impressive 1Q20 numbers from BUA Cement (T/O: +25.1% y/y; PAT: + 26.2% y/y) driven by strong top line growth as sales volumes increased by +24.5% y/y and haulage income on goods delivery grew +4% y/y. In other corporate news, FCMB Group announced that it entered into discussions with shareholders of AIICO Pension Managers to acquire the 70% stake held by AIICO Insurance Plc and 26% held by some other shareholders in AIICO Pensions, the proposed acquisition will make AIICO Pensions an indirect unit of FCMB Group. In Ghana, economic growth slowed in 1Q20 to 4.9% y/y vs. 6.7% in the same period last year, partly due to a sharp fall in construction (-7.% y/y) as the country fought to contain the coronavirus.

East African markets recorded mixed performance as strength in Mauritius, Uganda and Tanzania was offset by weakness in Kenya and Rwanda

East African markets recorded mixed performance as strength in Mauritius, Uganda and Tanzania was offset by weakness in Kenya and Rwanda. Kenya’s Central Bank announced an extension to the waiver of transaction charges for telecommunications and banks from 1 July 2020 until 31 December 2020, following the 16 March 2020 announcement as measures to facilitate the increased use of mobile money transactions instead of cash, in the context of the COVID-19 pandemic. The CBK’s Monetary Committee decided to keep the interest rate at 7.0% for the second time in a row, saying policy steps taken to boost the economy were working. In other news, Kenya’s diaspora remittances inflows recovered in May 2020 to KES25.8bn from KES20.8bn in April 2020. In corporate news, Co-operative Bank of Kenya announced that it finalised talks for the acquisition of a 90% stake in Jamii Bora Bank in a move that will see the strengthening of both institutions, this will be through the subscription of 224,2m new class A shares, Jamii Bora is the second smallest of Kenya’s 39 lenders, with 0.12% market share and 17 branches. In Mauritius, SBM Holdings published mixed 1Q20 results (GE: +13.7% y/y; PAT: -70.0% y/y) as top line growth was offset by a high credit loss expense of MUR 784.8m on the back of unfavourable exchange rate movements. New Mauritius Hotels reported flat 1H20 earnings to 31 March 2020 (T/O: +0.5% y/y; PAT: +4.2% y/y) attributable to the reduced activity across all the Group’s operations. In Uganda, the Central Bank cut the interest rate for the second time to new a low of 7.0% as risks to inflation remain benign and the outlook for economic growth is tilted toward the downside. In Rwanda, the annual inflation rate jumped to 9.2% in May 2020 from 8.0% in April and the IMF revised Rwanda’s 2020 growth forecast to 2% from 5.1% previously forecasted.

North African equities recorded positive returns across the region

North African equities recorded positive returns across the region. In Egypt, the annual inflation eased from 5.9% in April 2020 to 5.0% in May 2020, as the rate of change in the prices of food items went down by 0.7% as a result of decreases in the prices of poultry, grains, bread, rice, and vegetables after an increase of 1.3% in April. On the earnings front, Telecom Egypt announced mixed 1Q20 results (T/O: +15.1% y/y; PAT: -18.8% y/y) dampened by lower income from Vodafone Egypt, which fell -28.0% y/y due to one-off costs and provisions. Egypt Kuwait Holding exhibited satisfactory 1Q20 numbers (T/O: +12.9% y/y; PAT: +5.4% y/y) driven by a gain on a one-off hedging contract worth USD2.5bn at Sprea, however this was offset by a provision of similar size negating the impact on the bottom line. Raya Contact Center released poor 1Q20 results (T/O: -14.9.0% y/y; PAT: -72.2% y/y) as EDITDA margin decreased by 13.4bp to 8.1%. Ibnsina Pharma posted solid 1Q20 results (T/O: +19.6% y/y; PAT: +17.6% y/y) which we attribute to continued increase in market share growth with retail up +1.2pp y/y to 21.8% and non-retail up by +2.3pp to 19.9%. In other corporate news, Cairo for Investment and Real Estate Development announced that it intends to buy a 11,000 sqm property in West Assuit to build an international school, as part of its expansion in the educational sector, the company also mentioned that the final designs of its Badr University in Assiut are about to be finalized and ready to start construction at the beginning of August 2020. Elsewedy Electric for Trading and Distribution, a subsidiary of Elsewedy Electric announced signing a new contract worth EGP 423.3m with Al Mostakbal Urban Development Company, to construct phase 3 of the electricity and telecommunications infrastructure. The new project will be implemented over the span of 22 months on a turnkey basis.

Southern African equities recorded mixed returns with Zimbabwe and Malawi trading in positive territory while Zambia, Botswana and Namibia were weaker

Southern African equities recorded mixed returns with Zimbabwe and Malawi trading in positive territory while Zambia, Botswana and Namibia were weaker. In Zimbabwe, the ZSE increased +49.8% m/m in local currency, whilst using the OMIR it strengthened by +73.72% m/m and weakened by -41.26% m/m using the official RTGS Dollar rate. The OMIR strengthened by +13.8% against the dollar to 118.12 from 136.98 and the official RTGS dollar weakened to 63.74 from 25.00 (-155.0%), following the reintroduction of the auction system towards the end of the month. In other news, the Government issued a directive on 26 June 2020 suspending all mobile money services and trading on the Zimbabwe Stock Exchange, stating that the mobile payment platforms were major drivers of a roaring foreign currency trade outside formal banking channels. In line with the directive the Zimbabwe Stock Exchange suspended trading until further notice, whilst waiting on the guidance from the regulators on the operational modalities going forward. The suspension of mobile payments will hit the economy hard as more than 80% of all transactions are conducted on phones due to a shortage of banknotes. On the earnings front, we digested strong FY20 results from Seed Co International (T/O: +18.7% y/y; PAT: +64.0% y/y) driven by maize seed sales volumes which grew by +37.0% y/y on account of normal to above normal rainfall in Tanzania, Malawi and Zambia. Old Mutual Zimbabwe reported sturdy FY19 numbers (GE: +121.0% y/y; PAT: +203.3% y/y) driven by strong growth in the short-term insurance business (+398.6% y/y) as well as the banking business (+343.0% y/y). In Namibia, the Central Bank cut the key interest rate to 4.00% from 4.25% to stimulate growth in the face of the coronavirus pandemic. In Botswana, we saw the MPC leaving the interest rate unchanged at 4.25% and forecasted that the economy is expected to rebound to 3.9% in 2021, from a projected 13.1% contraction this year.