Monthly Highlights: June 2008

•  East African equities outperformed on back of strength in Kenya
•  Volatile trading conditions in Nigeria as investor sentiment continues to decline
•  Zimbabwe has submerged into state of virtual economic collapse
 

East African equities outperformed on back of strength in Kenya

East African outperformance was driven by strength in Kenya as the Fund’s underlying holdings performed well despite broader market weakness. The NSE20 fell -0.33% on the month although the index serves as a poor indicator of June performance given its various composition changes, most notably the inclusion of Safaricom. Mauritius retraced last month’s gain with the SEMDEX off -1.79% on the month. Tourism receipts appear to be holding steady although rising food & energy prices are presently threatening the Mauritian economy with double-digit inflation. Income levels are growing in line with rising prices although we have yet to witness any real pickup in domestic demand as overall consumption remains subdued.

Volatile trading conditions in Nigeria as investor sentiment continues to decline

West Africa continues to underperform with the Nigeria All Share plummeting -5.06% amid volatile trading. In an effort aimed at halting the recent slide in Nigerian equity prices, regulatory authorities announced a new price discovery rule on the 6th of June. Following the announcement, the market initially rallied more than 7%, but a combination of poor economic data and deteriorating investor confidence caused equities to fall before staging an end-of-month rally. On the inflation front, rising commodity prices and a generally poor harvest forced the Nigerian government to release grain from its strategic reserves as CPI rose to 9.7% - its highest level in two years. Despite a -0.80% decline in the BRVM Composite, Francophone Africa was this month’s big winner as the region contributed nearly 125bp of total performance attribution. We are turning increasingly bullish on the Francophone region as soft commodities exhibit increased potential for upside. Fundamentally speaking, supply concerns have reduced industry cover to less than three months while increased consumption from developing markets such as China have caused demand for coffee and cocoa to rise appreciably.

Zimbabwe has submerged into state of virtual economic collapse

Southern Africa continues to underperform as the Zimbabwean economy has submerged into a state of virtual collapse. With Mugabe’s Joint Operations Command (JOC) waging a campaign of violence on MDC supporters, conditions are expected to worsen until regional opposition can successfully mount a defense of Zimbabwean human rights. Zambia was a strong contributor on back of strength in the food & beverage sector while Botswana and Malawi contributed little in the way of meaningful portfolio attribution. Looking ahead, we are encouraged by opportunities in Mozambique with stateowned enterprises CMH (natural gas production) and M-Cel (wireless telecom) announcing their intention to list on the Bolsa de Valores de Maputo.