Monthly comment – June

The market

MSCI EFM Africa ex South Africa Net Total Return Index rose 1.6%, better than other frontier markets (MSCI Frontier Markets xGCC Net -1.5%). Nigeria rose 6.9%, Egypt fell 5.4%, Ghana fell 2.5% and Kenya fell 1.9%. Best African performer in June was again Zimbabwe rising 17.1%, followed by Nigeria. Namibia was the worst performer (-5.5%). (All changes in SEK)

Egypt continued the reform work in order to achieve a better balance in the economy. VAT was raised to 14% (from 13%) and the subsidies on petrol, diesel and gas were cut significantly. Petrol prices rose as an effect by 50% and the price of a butane bottle by 100%. After the raise a litre of 92 octane petrol costs EGP 3.5 (USD 0.2) which is still much lower than the cost, and we can expect further price hikes ahead. At the same time the rations all Egyptians receive as a food necessity subsidy was raised from EGP 21 to EGP 50 per month. The government also introduced a stamp duty on transactions done on the stock exchange.

In Nigeria, the newly introduced FX window for foreigners led to a rising equity market with increased turnover. The majority of money has found its way into the bond market where e.g. the 3- month T-bill yields around 16%. On the stock exchange, most tier-1 banks were among the best performers but took a breather as worries about credit losses resurfaced after telecom operator Etisalat Nigeria was taken over by a bank consortium after failing to repay an outstanding loan of approx. USD 1.2bn. Consumer companies continue to struggle; Unilever Nigeria and Guinness Nigeria are planning to raise capital (USD 150m and USD 100m respectively) to pay off outstanding debt and unsettled trade bills.

Kenya’s GDP for Q1 grew by 4.7%, the slowest growth since Q4 2013 and much lower than expected. The rate cap introduced last fall and poor harvests are blamed by most economists. Inflation however surprised by falling to 9.2% in June from 11.7% in May. This might offer some help to incumbent president Kenyatta ahead of upcoming elections in August, which looks to be a closer call than previously expected.

The Fund

The restructuring of the fund has continued and is reflected in positive relative return during the past month. Rising markets helped the funds absolute return. The fund rose by 4.4%, beating the benchmark index which rose 1.6%. On a country level, overweights in Nigeria and Egypt added most to the outperformance, while the underweight in Mauritius brought negative contribution. On a sector level, the fund gained from overweights and stock picking in Financials and Consumer Staples, while the overweight in Consumer Discretionary had a negative relative contribution. We expect the markets to become more range bound ahead of the earnings season. (All changes in SEK)

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