THE FUND:

Tourists are finding their way back to Egypt; tourism surplus increased to 7.4bn in 2017/18 from 1.4bn in 2016/17.

The fund lost 5.4% in September but performed better than the benchmark, MSCI EFM Africa ex South Africa Net Total Return Index which decreased 6.9%. Total return year to date for the fund is +0.9%, slightly better than the benchmark’s -0.3%.

The fund’s overweights in Nigeria and underweights in Kenya and Morocco added more than 4%-points to the relative return, but a rough month for Egyptian holdings cost the fund more than 2%-points. All-in-all the fund outperformed by approximately 1.5%-points in September. On a sector level, the fund gained from overweights in Financials and its stock selection in Consumer Staples, while the largest negative contributions relative to the benchmark came from overweights in Consumer Discretionary and Healthcare. The Swedish Krona appreciated 3.9% in September reducing the SEK return in the month. There were no major changes to the portfolio during the month. (all changes in SEK)

THE MARKET:

The African (MSCI EFM Africa xSA -6.9%) markets underperformed other Frontier Markets (-3.7%) in September. Zimbabwe was the best performing market (+1.1%) while Botswana (-14.2%) and Zambia (-13.9%) were the worst performing markets. The large fall in Botswana is fully explained by Choppies, a major retailer, (not a fund holding) which fell 75% after another profit warning and a delay in publishing results after replacing its auditors. Zambia’s stock market rose in local currency terms, however rising inflation and growing worries about rising debt levels at the same time as the World Bank lowered the country’s growth outlook due to falling copper prices hit the Kwacha (-17% vs USD in September).

The major equity markets in Africa fell in what seems to be a delayed reaction to the emerging markets turmoil in August. The Egyptian (-9.1% in September) market was among the worst performers but without any specific news distorting the longer-term investment case. The expected interest rate cuts for the rest of the year will likely be delayed until 2019 which could partly explain investor disappointment nonetheless, news flow, macro data, and company reports continue to support our bullish view on the market.

Nigeria’s (-7.6%) performance was mainly connected to the MTN issue, a South African telecom giant, we discussed in our last monthly update (http://bit.ly/2P3tj32). Alongside the Central Bank’s demand that MTN repatriate USD 8bn to Nigeria, the Attorney General also slammed MTN with a USD 2bn tax claim causing the stock to fall 35% in South Africa. The harsh tone from Nigeria later softened and the stock partially recovered as the market hoped for a viable solution. MTN claims no wrongdoing and warns that the potential listing of its Nigerian business might have to be put on hold.

Investors rushed to the exits in Kenya (-12.3%) after the senate approved the amended budget, several of the index heavy weights fell between 10% to 15%. There was disappointment that the rate cap was retained, and we are likely to see a downwards adjustment of estimated profit numbers. It was a relief to see the reported GDP growth for the second quarter as the economy grew by 6.3%, beating market expectations of 5.7%.

DISCLAIMER:
Capital invested in a fund may either increase or decrease in value and it is not certain that you will be able to recover all of your investment. Historical return is no guarantee of future return. The Full Prospectus, KIID etc. are available on our homepage. You can also contact us to receive the documents free of charge. Please contact us if you require any further information: +46 8-5511 4570.