Monthly Highlights: April 2009

•  East African performance again led by gains in Kenya and Mauritius
•  Nigeria rebounded sharply on the month
•  Southern Africa broadly weaker although Namibia performed well on back of ZAR-related strength
 

East African performance again led by gains in Kenya and Mauritius

East African equity markets posted another positive month with the SEM-7 (Mauritius) and NSE20 (Kenya) and rising +4.97% and +0.28%, respectively. In Mauritius, trading volumes soared by nearly 200% as more than MUR 1.358 billion changed hands on the month. Broad-based gains were led by bellwethers NMH (up +8.97%), SBM (up +6.43%) and MCB (up +4.17%). Continued monetary easing remains a foregone conclusion as the outlook for Mauritian textiles and tourism weakens. Nevertheless, the SEMDEX remains one of the world’s most compelling valuation plays with a market capitalization of roughly USD 3 billion and historic P/E ratio of 8.5. In Kenya, the World Bank reduced its economic growth targets to 2.4% and 3.4% for 2009 and 2010, respectively. Nevertheless, we are somewhat more optimistic following this month’s due diligence visit to East Africa. In short, we believe Kenyan GDP growth will be closer to 4.0% in 2009 as fiscal stimulus begins to take hold. Of note, demand for Kenya’s infrastructure bonds have proved surprisingly resilient as the nation’s power and cement industries exhibit anecdotal evidence of renewed strength. Inflation remains a wild card however with the core figure rising +2.9% m/m to 8.2%. In other action, the Tanzania Composite fell -2.1% in USD terms while the Uganda All Share rose +2.4% in USD terms.

Nigeria rebounded sharply on the month

West African equity markets were mixed on the month although Nigeria contributed significantly to overall performance as the NSE All Share rebounded +7.56% on the month. Financials led the way as a handful of local players made asset allocation switch from equities into bonds amid increased market volatility. An improved harvest caused Nigerian inflation to dip on back of weaker food prices and we also saw the Central Bank of Nigeria’s slash rates by 175bp earlier in the month. Nevertheless, short-term yields remain well supported as 12mth Nigerian T-Bill auction volumes rose sharply in April. Of note, the Nigerian Stock Exchange has taken measures aimed at regulating the private placement market amid reports of large investor losses. In Cote d’Ivoire, the BRVM Composite declined by -7.0% in April as the weak cocoa harvest continues to weigh on investor sentiment. Furthermore, this month’s announcement that Ivorian elections have been delayed until Q4/2009 has led to political wrangling with the government’s credibility being called into question. In Ghana, the GSE All Share shed another -4.4% on the month as trading conditions remain thin overall.

Southern Africa broadly weaker although Namibia performed well on back of ZAR-related strength

In Southern Africa, the BSE DCI (Botswana) fell by -4.8% as the economy will likely post sub-3.5% annual economic growth for the first time in nearly thirty years. The Bank of Botswana eased rates by 100bp in April with many analysts calling for further cuts amid deteriorating mineral exports (diamonds in particular). Moody’s lowered Botswana’s local currency debt rating from A1 to A2 while S&P lowered its bias from stable to negative. Yet in reality, the nation has little to no debt overhang and its foreign exchange reserves remain sufficient overall. In Zambia, the LuSE fell by -1.3% in USD terms as plans to re-open of the Chambishi cobalt facility and Baluba copper mines have been pushed back until June as creditors refuse to take a 50% haircut. On the currency front, ZMK appears to have bottomed although renewed depreciation remains an overriding concern for many. Nevertheless, rising export prices and the projected IMF loan facility should lead to significant BoP improvement over the medium-term. In other action, The Malawi All Share Index fell -2.2% in USD terms while the Namibia Local Index rose +12.2% in USD terms as the result of +10.3% appreciation in ZAR— its best performing month since Sept 1986.