Monthly Highlights: November 2008

•  East Africa underperformed amid weakness out of Mauritius
•  West African equities declined sharply on the month
•  Southern Africa remains subdued as most bourses retreated

East Africa underperformed amid weakness out of Mauritius

In East Africa, the Portfolio’s Kenyan holdings staged a modest recovery despite the NSE20 posting a marginal decline of -1.3%. Interestingly, we witnessed the return of deep value investors as attractive valuations helped some of the nation’s more profitable firms stage a modest comeback. Mauritius continues to disappoint as the Central Bank lowered its 2009 growth estimate and Moody’s downgraded approximately USD 20 million in sovereign CDS. The SEM-7 Index declined -15.25% as the annual growth rate of tourist arrivals plummeted to new lows amid profitability concerns across the sector. Despite stronger-than-expected earnings results, Mauritian banking shares came under similar pressure during the month. Positive earnings growth and strong fundamentals add to the allure of Mauritian banks, and we are actively monitoring developments across the sector. Tanzania performed well in November as domestic interest in local equities remains strong following the successful IPO of National Microfinance Bank. The listing resulted in a +9.0% increase in market capitalization although foreign investors were unable to participate.

West African equities declined sharply on the month

In West Africa, equity markets were broadly lower as The Nigerian Stock Exchange All Share fell by -9.08% as the result of continued selling pressure from foreign investors and concern over falling oil prices. Negative sentiment was further impacted by violence in the Niger Delta and political uncertainty surrounding central state elections. The persistent decline in crude oil has caused concern over Nigeria’s current account funding and the sustainability of its foreign exchange reserves, which presently are USD 57.5 billion or 16 months of import cover. Nevertheless, forward growth estimates remain strong with the World Bank estimating aggregate and non-oil related GDP growth of 9.5% and 8.0%, respectively. In Ghana, the GSE retreated –1.93% as election jitters led to increased profit taking amid increasingly thin volumes. Although we expect a tightly-contested election, we envisage a relatively amicable result with little meaningful change in Ghanaian economic policy. The BRVM Composite declined by -10.31% as black-pod and swollen-shoot diseases threatened cocoa and sugar production along the Ivory Coast. Looking ahead, we remain encouraged by regional growth prospects as evidenced by this month’s announcement of an Economic Partnership Agreement (EPA) between the European Union and Cote d’Ivoire. The EPA is designed to promote competitiveness, growth and investment by awarding Cote d’Ivoire duty and quota free access to various EU markets.

Southern Africa remains subdued as most bourses retreated

Southern African markets remain subdued with most equity bourses retreating slightly on back of declining commodity prices and ZAR-related weakness. In Zambia, the LUSE All Share declined by -16.5% on back of declining copper prices and political uncertainty following disputes about the results of the recent presidential elections. In terms of relative equity market performance, The Malawi All share continues to outperform in both local and USD terms with year-to-date returns of 29% and 28% respectively. It should be noted however that the Malawi Kwacha looks increasingly stretched as a generally low level of foreign exchange reserves leaves the currency vulnerable to depreciation pressure.



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