Monthly Highlights: September 2010

•  West African equity markets underperformed on back of weakness in Nigeria
•  East African Equity markets outperformed on back of gains in Kenya and Mauritius
•  Southern Africa rose amid currency-related strength
 


West African equity markets underperformed on back of weakness in Nigeria

West African equity markets retreated on back of weakness in Nigeria with the NSE ASI declining by -6.95% on the month. The Central Bank of Nigeria unexpectedly hiked its benchmark lending rate by 25bp to 6.25% as inflation accelerated on back of rising transportation costs amid the planned elimination of fuel subsidies. Yet we view this month’s policy move as an attempt to contain price pressures ahead of increased government spending with AMCON expected to increase Nigeria’s money supply through the purchase of NPLs from across the commercial banking sector. It should be noted that this marked the first increase in the Monetary Policy Rate since Jun 2008 and was met by 200bp of tightening in the commercial bank lending corridor. As such, banks have begun to lower guidance with First Bank of Nigeria announcing that it will be unable to meet its 10% loan growth target for FY10. In Ghana, the GSE ASI rose by +0.77% as the Bank of Ghana left rates on hold at 13.5% after easing rates at each of the past four meetings. Although fiscal pressures are likely to weigh on the Cedi, inflation continues to ease despite upside risk in the form of utility tariff hikes (i.e. water, electricity, et al) and public sector wage pressures. Ghana’s outlook was upgraded to stable from negative at Fitch and the nation signed a landmark USD 10.4 billion loan agreement with China Export Import Bank for development of the Kumasi to Paga Railway System. In other action, the BRVM Composite rose by +10.11% as a decline in the greenback resulted in sharp appreciation of the CFA Franc given its implicit Euro peg.

East African Equity markets outperformed on back of gains in Kenya and Mauritius

East African equity markets exhibited broad-based strength in September with the NSE 20 (Kenya), SEM-7 (Mauritius), USE ASI (Uganda) and DSEI (Tanzania) up +4.27%, +3.71%, +6.74% and +1.30% respectively. The Central Bank of Kenya left its benchmark rate unchanged at 6% and although short-term rates appear to be picking up, reserve money has expanded amid increased bank lending as evidenced by the persistent decline in interbank lending rates. The ongoing struggle for dominance in Kenya’s telecom sector continued with Zain Kenya announcing its intention to spend USD 350 million in order to expand its network. Should Zain Kenya be successful in its carrying out its strategy, it plans on overtaking Safaricom as the nation’s leading operator by 2014. KenolKobil posted a +3.65% gain on the month as the oil company announced that it had successfully regained its import license. Shifting to Mauritius, the Central Bank of Mauritius cut its repo rate by 100bp to 4.75% amid concern that economic growth will continue to slow. Shares of New Mauritius Hotels rose +2.00% on the month despite management’s announcement of a smaller-than-expected final dividend amid increased speculation of deteriorating profitability. Shifting to Uganda, fiscal policy is likely to remain expansionary as foreign donors are expected to stay on the sidelines in anticipation of the Feb 2011 elections. Similarly, poor foreign participation at Tanzania’s recent auctions has resulted in a shortage of foreign currency as interest rates continue to rise amid concern surrounding next month’s elections.

Southern Africa rose amid currency-related strength

In Southern Africa, equity market returns were broadly higher as a +5.57% rise in ZAR/USD fueled currency gains across the region. In Zambia, the LuSE ASI rose +8.97% as exports remain largely range-bound. Although the nation’s trade balance appears to be improving amid slower machinery and equipment imports, non-food inflation is picking up despite the decline in Zambian food prices. In Botswana, the Gabarone DCI rose +4.11% as inflation continues to slow amid a decline in transport costs. In Malawi, the DCI was flat with little to no trading volume as the nation remains constrained by foreign currency shortages. Looking ahead, conditions in Malawi are likely to worsen despite the ramp up of strategic exports (e.g. uranium) in lieu of tobacco’s perpetual decline. In other action, the ZSE Industrial and Mining Indices (Zimbabwe) rose +4.67% and +14.11% respectively.

 

 

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