The Fund rose 2.7% in April, worse than the benchmark index MSCI EFM Africa ex South Africa Net Total Return Index, which rose 4.9%. The Fund has risen by 13.1% year to date, slightly worse than the benchmark index +14.6%.
On a country level, overweights in South Africa (5% of assets) and Nigeria (35%) contributed most positively relative to the benchmark. The Fund’s underweight to Morocco (0% of fund assets) and Kenya (0%) contributed most negatively. At sector level, overweights and stock picks in Health Care and Consumer Staples stocks contributed most positively, while holdings within Financials (mainly Egyptian Commercial International Bank where the Fund has approx. 4% vs index 16.5%) and underweight in telecom operators contributed most negatively relative to the benchmark. The Swedish krona weakened by 2.5% against the USD, which had a positive effect on the return converted to SEK.
Towards the end of April, we decreased slightly in one of our South African holdings, Massmart, after the share had risen more than 20% in the month (all changes in SEK).
The African markets (MSCI EFM Africa xSA Net TR (SEK) + 4.9%) outperformed other Frontier markets (MSCI FMxGCC Net TR (SEK)), which rose 0.9% in April. South Africa was the best African market rising 11.2%, followed by Zimbabwe, which rose 10%. South Africa did well ahead of the elections on May 8th pushed by Naspers and MTN. Inflation in Zimbabwe continues to rise sharply, +66.8% in March, driven by the new currency policy (see March update), and investors are moving to the equity market to try to preserve the value of their assets with the hyperinflation years in fresh memory. As prices increased by several billion percent, the stock market also skyrocketed (“best” year was 2007 when the stock market rose more than 333,000% in local currency). The worst performing stock markets in Africa were Zambia (-2.9%) and Nigeria (-0.4%) (all changes in SEK).
The Egyptian market (+2.6% in April) mostly traded sideways during the month prior to the reporting season. The country also went to the polls and voted with 89% majority (44% voter turnout) to change the constitution, extending the term in office to 6 years (from today’s 4 years) and enabling President El Sisi to remain in power until the year 2030.
In the stock market in Nigeria (-0.4%), consumer and cement companies underperformed, while our bank holdings did better, helped by dividend period peaking in April. Access Bank (+14.8%) was the best performer after completing the merger with Diamond Bank, and increasing the number of investors seeing the potential of the merged company. The company also released earnings for the first quarter, showing surprisingly strong growth. The successful listing of Africa’s first “unicorn” also received great attention when Jumia, often called the Amazon of Africa, listed in New York and in a short time rose more than 200% valuing the company to more than USD 3.5bn. Just like many other companies that have been listed recently, the company has a very fast sales growth, but at the same time it is far from making a profit. Jumia is present in 14 African countries with sales of USD 150m in 2018, +45% from 2017, but at the same time reported a loss of USD 200m (compared to USD -183m 2017).
In Kenya (+ 1.9%), GDP statistics were released for the fourth quarter of 2018. The economy grew by 5.9%, which was in line with expectations. At the same time, the third quarter GDP was revised to 6.4% from 6%. A late start to this year’s rainy season caused the prices of many crops to rise, and inflation in April rose 6.6% from 4.4% in March, with risks to the upside in the coming months. Kenyan Equity Bank is on the offensive and bought businesses in Rwanda, Tanzania, Zambia and Mozambique from the investment company Atlas Mara. Equity Bank pays with newly issued shares (approx. 6% dilution) valuing the transaction to approx. USD 105m.
Ghana (+6.1%) reported GDP growth of 6.8% in the fourth quarter of 2018, which in combination with good reports from the banks in particular helped the Ghanaian Cedin strengthen by more than 6% vs the USD.
When going through the companies´ results for 2018, and adding the first quarter of 2019 when available, we conclude that the portfolio is currently very attractively valued. The Fund is valued at 6.2x expected profits in 2019 (estimated to grow by 15%) with a dividend yield of 6.6%.
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.