Monthly Highlights: September 2008

•  Continued weakness in Kenya & Mauritius
•  Francophone Africa retreated on the month
•  Southern African equity performance remains weak

Continued weakness in Kenya & Mauritius

East African equity markets suffered with the SEM-7 (Mauritius) off -6.73% and NSE20 (Kenya) off -10.08%. To compound matters, the flight-toquality move resulted in a stronger greenback and placed additional pressure on local currency performance as the SEM-7 and NSE20 indices declined by -8.03% and -15.57% in USD terms. Despite having trimmed its 2008 economic growth forecast, the Mauritius Central Statistics Office is still forecasting annual GDP growth of 5.6% on back of increased sugar production and moderately higher tourist arrivals. In Kenya, 2nd quarter growth rebounded strongly as mining and retail output led to annual growth of 3.2%. Notably, both the Mauritian and Kenyan Central Banks left interest rates unchanged despite rapidly accelerating inflation. In so doing, policy makers have all but confirmed that the downside risks to economic growth outweigh the effects of rising inflation. It is our contention that accommodative monetary policy will have a bullish impact on domestic equity markets over the medium-term.

Francophone Africa retreated on the month

West African equity markets performed poorly as the Francophone region gave back much of this year’s positive attribution with the BRVM Composite plummeting -8.92% on the month. Returns were negatively impacted by disappointing half-year results from index bellwether Sonatel, a -10.68% decline in the price of cocoa and the fast approaching presidential elections in Cote d’Ivoire. In Nigeria, the NSE All Share declined -3.29% on the month and the index is now off -20.3% YTD in local currency terms. Although this month’s -12.84% decline in the price of oil will weigh on Nigerian export revenues, the NGN remains strong and the economy continues to expand at a healthy pace. Furthermore, perceived corruption in Nigeria has declined meaningfully over the past year as the nation improved 26 places from 147 to 121 according to the esteemed non-partisan political organization, Transparency International. Yet more importantly, Nigeria’s overall score strengthened 22.7% from 2.2 to 2.7 as the general public’s perception towards corruption and how it impacts the daily lives of ordinary citizens has exhibited vast improvement. The lone bright spot remains Ghana as the GSE All Share rose +0.93% in September amid a highly volatile macroeconomic backdrop. With Ghanaian inflation set to decelerate in coming months, we are further encouraged by the nation’s resilience in weathering recent market unrest.

Southern African equity performance remains weak

Southern Africa remains weak although investments in both Malawi and Botswana proved profitable on the month. The MSE All Share (Malawi) rose approximately 3% on the month as investors applauded the IMF’s 8.7% GDP growth forecast for fiscal 2008. It should be noted that Malawi has made serious efforts aimed at diversifying its national economy away from agricultural exports such as tobacco and tea. With the nation’s abundant uranium deposits poised to come on line early next year, investors are banking on increased export riches in the months ahead. A telling indication of the nation’s improved economic status was this month’s successful listing of Real Insurance of Malawi which exhibited a 52% jump in share price on its first day of trading. Botswana also benefited from improved export diversification as investors rewarded the nation’s attempt to shift away from its reliance on diamonds and into other minerals such as coal. The Botswana Domestic Index rose +9.27% in September on back of strength in financials – a trend which clearly runs counter to the ongoing global credit crisis.



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