THE FUND

The fund rose 5.7% in October, better than the benchmark, MSCI EFM Africa ex South Africa Net Total Return Index, which rose 2.1%. Zimbabwe was Africa’s best performing market rising 50.2% followed by South Africa (+5.8%). The worst performers in Africa were BRVM (a joint exchange for e.g. Ivory Coast, Senegal and Togo) (-2.3%) and Uganda (-1.1%). The Swedish Krona weakened by 2.3% adding to the SEK return.

On a country level the fund gained from our overweight in Egypt and Nigeria, while our underweights in Morocco and Kenya dragged the most on our relative performance. On a sector level, our overweights in Financials and stock picking in the Consumer sector had the greatest positive contribution relative the benchmark, while we lost on underweights in Telecom and Materials. Our Egyptian holdings in the Industrial and Consumer Discretionary sectors (e.g. El Swedy Electric, Egypt Kuwait Holding and GB Auto) continued to outperform at the same time as interest in Nigerian Financials (e.g. UBA and Zenith Bank) also increased. During the month, we increased our positions in Zenith Bank, after a strong report, and Egyptian Commercial International Bank. (changes in SEK)

THE MARKET

The African markets performed worse (2.1%) compared to other Frontier Markets (+5%) and excluding the weakening of the SEK, the MSCI EFM Africa ex South Africa Net Total Return Index would have ended in red again. Zimbabwe’s remarkable performance (+50.2%) is attracting a lot of interest. Unfortunately, it should not be interpreted as improving outlook rather quite the opposite. There is an acute shortage of cash within the country and after the central bank started printing “Bond notes” (notes that also can be used alongside USD, backed by a loan from the African Development Bank) fears of inflation rose quickly. The stock market has subsequently seen a lot of inflows from people trying to safeguard the value of their savings. The official inflation rate of 1% is not supported by reports of empty supermarket shelves and price increases of 50-150% on certain food staples in the last month. There is a high risk of a repeat of the hyperinflation environment in 2008. Nigeria (+4.3%) is among the world’s largest receivers of remittances and the World Bank estimates the total at USD 22bn in 2017. A 5% increase form 2016. They also estimate that USD 2bn will be paid in transfer fees for those remittances. The IMF visited Egypt (-0.4%) to follow up on the economic and reform programmes initiated after the devaluation in November last year. The IMF is expected to green light the release of the third USD 2bn loan as planned. The election in Kenya (+0.6%) continued to dominate the news. There was widespread uncertainty if the planned re-election, scheduled for October 26, would go ahead or no. Odinga, the opposition candidate, chose to boycott stating he did not believe the election would be fair since the Election Committee had not implemented the necessary reforms to ensure that mistakes from the August 8^th election were not  repeated. On October 30^th the Election Committee declared incumbent president Kenyatta the winner, receiving 98% of the votes. Voter turnout however was only 39%, compared to 80% in August, raising concerns about the legitimacy of the election. As of today, Odinga has declared he will not challenge the result through the courts (although he also said he would not stop anyone else from doing so), but instead introduce “citizen assemblies” as well as organising protests and economic boycotts. Kenya will continue to face increased political risk, which we fear, will negatively impact economic activity. In Ghana (+4%) as most tier 1 banksdisclosed that they would not have problems meeting the increased capital ratios from the December 2018 deadline; stock prices recovered from last month’s sell off. (changes in SEK)