Monthly Highlights: May 2008

•  East African equities underperformed on the month
•  Investor sentiment continues to deteriorate in Nigeria
•  Zimbabwe suffered as the RBZ suspended two-way fungibility for listed shares
 

East African equities underperformed on the month

East African underperformance was driven by Kenya as the NSE20 fell -3.0% on the month. Yet despite overall market weakness, our Kenyan holdings performed well as financials contributed nicely into month-end. Mauritius finally caught a modest bid with the SEMDEX up +1.19% on the month. Strength in SBM drove index performance although tourism stocks continued their retreat on the back of weakness in NMH, Sun Resorts and Rogers. Cote d’Ivoire also contributed nicely with the BRVM Composite posting a +1.38% gain on the month.

Investor sentiment continues to deteriorate in Nigeria

West Africa underperformed with the Nigeria All Share dropping -0.86% amid speculation that the central bank may prevent brokers from trading on margin. Investor sentiment in Nigeria continues to deteriorate as the market has now posted three consecutive months of negative performance. With the nation struggling to bring its crude output back online and inflationary headwinds looming large, we have significantly reduced our exposure to Nigeria and remain underweight the region’s largest equity market. Ghana remains a bright spot for investors as the GSE All-Share rose +4.98% to yet another all-time high. While we remain bullish on Ghana’s underlying growth prospects, uncertainty surrounding year-end elections, slowing real income growth and rising inflation are cause for concern. As such, we have begun taking down our Ghanaian exposure.

Zimbabwe suffered as the RBZ suspended two-way fungibility for listed shares

Southern Africa was this month’s worst performing region as continued tension in Zimbabwe led to the Reserve Bank of Zimbabwe (“RBZ”) suspension of two-way fungibilty for listed shares, including Old Mutual. Without the Old Mutual fungibility mechanism, investment into Zimbabwe is expected to decline sharply as foreigners will now face increased scrutiny when attempting to remit investment proceeds. Although suspension of two-way fungibility was conveniently designed to promote floating of the nation’s exchange rate, measures surrounding the move have led investors to believe that the RBZ is attempting to drain foreign exchange resources for benefit of Zanu-PF. As a result, investor confidence in Zimbabwean equities plummeted with the Zimbabwe Dollar off nearly 260% on the month. The Portfolio witnessed a lack of significant attribution from Botswana, Malawi, Namibia and Zambia on the month.