THE FUND
The fund rose 4.3% in November, better than the benchmark, MSCI EFM Africa ex South Africa Net Total Return Index, which rose 1.9%. South Africa was the best market in Africa rising 8.9% followed by Kenya (+7.9%). The worst performers in Africa were Zimbabwe (-36.3%) and Egypt (-1.8%). The Swedish Krona finished the month unchanged versus USD.
Even though Egypt was one of the worst performing markets in November our Egyptian holdings actually gave the highest relative contribution to the outperformance vs the benchmark. Our overweights in Nigeria and Ghana contributed positively, while our underweights in Kenya and Morocco, again, were the main negative contributors. On a sector level, our holdings within Consumer Discretionary and Industrials contributed the most to the relative performance, while we lost on underweights in Telecommunication and Real Estate. GB Auto, the Egyptian car assembler, finished the month on a strong note rising 30% in a week, adding nearly 1% to the outperformance in November. The Egyptian parliament is expected to implement a change in taxation, favouring domestically produced cars relative to imported ones, in January/February. The tax change combined with increased expectations of rate cuts will have positive effects on GB Auto’s earnings. We added to our position in Cleopatra Hospital in November after a strong set of numbers while also doing a rights issue to fund future acquisitions. The company is active in a sector where the dynamics are changing. They run four hospitals in Cairo today and are looking to acquire another two. This will create further synergies in terms of purchasing and administration as well as further build their brand.
(all changes in SEK)
THE MARKET
The African markets performed worse (1.9%) compared to other Frontier Markets (+2.2%). In Zimbabwe Mugabe’s 37-year-old presidency (-36.3%) came to an abrupt end when the military intervened to stop “illegal forces surrounding the presidency.” The trigger seems to have been Mugabe’s removal of vice president Mnangagwa to pave the way for Grace Mugabe, his wife, as his successor. After Mugabe’s forced exit, Mnangagwa was inaugurated as president and is currently assembling a new government. His speech at the inauguration ceremony increased hopes of improved relations with the rest of the world, addressing improved/clarified regulations on foreign ownership among other things. However, it will take time before improvements materialise as the last few years have put a significant dent in the economy. The political situation in Kenya (+7.9%) improved too as the Supreme Court denied appeals brought to the court after Kenyatta’s re-election on October 26th. Incumbent President Kenyatta was sworn in for his second term on November 28, and the stock market reacted positively with telecom operator Safaricom reaching new all-time highs. Nigeria (+0.6%) sold Eurobonds amounting to USD 3bn which attracted large interest. USD 1.5bn was placed in a 10-year bond yielding 6.5% and USD 1.5bn in a 30-year bond yielding 7.625%. GDP in the third quarter grew by 1.4%, an improvement from the 0.7% in the second quarter. The improved growth can be traced to the oil sector, helped by increased production and higher prices. In Egypt (-1.8%) inflation keeps moderating, although still very high, to 30.8% in October from 31.6% in September. The central bank kept rates unchanged at 18.75% at its latest meeting, pushing hopes for rate cuts to the next meeting in December when inflation may decline significantly due to base effects since the current inflation stems mainly from the currency devaluation in November last year. Most economists are expecting several cuts in 2018 which should be positive for equity markets. Ghana (+3.1%) is also seeing moderating inflation. October prices rose 11.6% from a year earlier compared to +12.2% In September. The market got an unexpected rate cut 20% down from 21% by the central bank. The decision did not favour the Ghanian Cedi, already one of the worst performing currencies in Africa, and fell further. It has weakened almost 7% versus USD in 2017.
