Monthly Highlights: June 2011

•  West African equities declined although Ghana continues to perform well
•  East African equities were broadly weaker as macroeconomic factors weighed on overall performance
•  Southern Africa performed relatively well amid strength in Zambia
 

West African equities declined although Ghana continues to perform well

West African equities weakened on the month with the NSE ASI (Nigeria) and BRVM Composite (Francophone) declining by -0.93% and -1.91% respectively. In Nigeria, inflation continues to weigh on investor sentiment as the headline index rose from 11.3% to 12.4% y/y despite 200bp of CBN tightening since Sep 2010. Of note, the fundraising environment appears to be improving as evidenced by this month’s announcements from Flour Mills and Cement Company of Northern Nigeria both are seeking to raise more than USD 250 million. Shifting to Ghana, the Composite Index rose +1.56% in May against a backdrop of positive economic news. 1Q11 Ghanaian GDP growth increased by +23% y/y on back of broad-based gains in energy, mining and agriculture. Interestingly, reported inflation is still in decline as evidenced by this month’s drop from 9% to 8.9% y/y while bond yields fell to their lowest levels since on back of last month’s unexpected 50bp rate cut. On the corporate side, shareholders approved GGBL’s USD 47 million equity rights offer as the company’s shares rose +12.5% for the month. Although the Tullow IPO has not received much interest from foreign investors, Kosmos announced that it will raise an additional USD 50 million via share listing on the GSE.

East African equities were broadly weaker as macroeconomic factors weighed on overall performance

East African equities were broadly weaker in May as the NSE 20 (Kenya), DSEI (Tanzania) and USE ASI (Uganda) declined by - 6.73%, -4.33% and -13.61% respectively. In Kenya, the Shilling depreciated by -4.2% as the World Bank lowered its estimate of the nation’s FY11 GDP growth from 5.3% to 4.8% y/y following last month’s downward revision by the CBK. Little to report on the earnings front as Centum and Deacons failed to excite investors whilst Kenya Airways reported a 74% increase in PAT for FY to March 2011. In other action, EABL agreed to acquire SABMiller’s 20% stake in Kenya Breweries Ltd for USD 225 million and publicly list the shares on the DSE. Shifting to Mauritius, tourist revenues rose +6.3% y/y on back of a +22% increase in arrivals. Although inflation is expected to remain under control over the medium-term, the BoM increased its benchmark rate by 25bp to 5.5%. On the month, the portfolio continues to profit from its investment in Mauritius Commercial Bank as the bank’s shares are nearing the all-time high reached in Feb 2008. In Tanzania and Uganda, inflation concerns and dry weather conditions have fuelled currency concerns as TZS and UGX depreciated by 3.81% and 7.10% respectively on the month. Nevertheless, we have grown increasingly bullish on these two East African nations as they continue to attract large FDI inflows with Tanzania announcing its intention to privatize a portion of the nation’s power utility and Uganda planning to build a new highway and develop hydropower projects.

Southern Africa performed relatively well amid strength in Zambia

In Southern Africa, equity performance was relatively strong with Zambia contributing nicely despite a -5.75% decline in the LuSE ASI. The portfolio profited from its holding in Zambeef as the agri-finance company’s successful USD 55 million fundraise and subsequent AIM listing caused local shares to rise by +10.45% on the month. In Botswana, the Gaborone DCI rose by a modest +0.12% as the Bank of Botswana left rates unchanged at 9.5% as inflation slowed from to 8.2% from 8.5% y/y. By contrast, the Namibia Overall Index fell by -1.35% as the BoN left rates unchanged at 6.0% following the continued rise in inflation from 4.8% to 5.2%. In Zimbabwe, the Industrial Index rose by +2.33% on the month as favourable earnings from Seedco (PAT increased by +36% y/y) and OK Zimbabwe (PAT increased by +250% y/y) led to improved investor sentiment.