Monthly Highlights: June 2009

•  East African equities continue to outperform
•  Nigerian equities retraced after two strong months of performance
•  Southern Africa posted broad-based gains
 


East African equities continue to outperform

East African equity markets continue to shine with the NSE 20 (Kenya) up +18.38%, SEM-7 (Mauritius) up +10.02%, Tanzania Composite up +2.69% and Uganda ASI up +20.45%. In Kenya, sentiment continues to improve on back of bond-related gains with the infrastructure bond rising +7.1% on back of USD 105 million in turnover since Feb 2009 issuance. As a result, the number of Kenyan corporates seeking debt issuance approval has jumped with KenGen, CFC Stanbic and Centum actively looking to tap the bond market in coming months. Sentiment was further buoyed by an end to the drought and skyrocketing tea prices. Tea exports remain an important source of foreign exchange for the Kenyan economy, and the onset of cold season caused a significant increase in the average selling price at last week’s auction. In Mauritius, tourism revenues declined by -14.1% in the first quarter as the sector appears poised to outperform the market’s overly pessimistic expectations. The Bank of Mauritius (BoM) left rates unchanged at 5.75% as “disinflationary momentum remains strong.” With the rate of inflation expected to drop to 3.0% by year-end, we believe the BoM will maintain a relatively loose policy stance when compared to the rest of Sub-Saharan Africa. Although 2nd half profits could well exceed market expectations, we remain sanguine with respect to the Mauritian banking sector as asset quality in some sectors (i.e. tourism, textiles, et al) could come under increased pressure from deteriorating global growth. Furthermore, generally soft domestic demand could lead to increased interest rate volatility and Rupee depreciation over the medium-term.

Nigerian equities retraced after two strong months of performance

West African equity markets were largely weaker as the NSE ASI (Nigeria) and GSE ASI (Ghana) declined by –11.80% and –28.63%, respectively. Nigerian banks led the move lower as selling combined with profit-taking from locals. We are growing increasingly optimistic on the Nigerian banking sector as newly-elected CBN Governor Sanusi appears focused on improving financial sector credibility through improved transparency and corporate governance. Despite the pullback in financials, defensive names such as Wapco and Nestle have faired nicely and brewers such as Guinness Nigeria and Nigerian Breweries continue to perform well. Ghana finally capitulated amid broad-based selling with ETI (off -50.0%), GGBL (down -28.8%), SIC (down -16.1%) and SGSSB (down -14.8%) leading the move lower. The BRVM Composite (Francophone) rose +9.91% on the month as investor sentiment continues to improve with GDP growth projected to rise after years of conflict-induced slowdown. Agrifinance shares attracted considerable attention w/ SOGB (up +107.53%), SPHC (up +88.9%) and PALMCI (up +60.0%) accounting for much of the monthly trading volume.

Southern Africa posted broad-based gains

Southern Africa posted broad-based gains for the second consecutive month as the LuSE ASI (Zambia), Gaborone DCI (Botswana) and Namibia Local rose +8.26%, +4.19% and +3.14%, respectively. In Botswana, the Bank of Botswana (BoB) cut rates by 150bp to 11.5% given the generally benign inflationary outlook. Slower economic growth, declining domestic output and a drop in food and transport prices have driven the BoB to slash rates by nearly 400bp since December. In Zambia, rising copper exports and a modest drop in inflation lifted stocks with food & beverage names such as ZAMBEEF (up +29.0%) and ZAMBREW (up +25.0%) leading the move higher. In Zimbabwe, equities came in mixed with the ZSE Industrial Index gaining +10.69% and the ZSE Mining Index dropping -5.81%. In other action, the Malawi ASI was up +0.09% on the month amid generally thin trading volumes.

 

 

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