Monthly Highlights: August 2008

•  East Africa continues to underperform amid weakness Kenya and Mauritius
•  Nigerian banking sector remains under pressure
•  Zimbabwe retraced last month’s gains following collapse of SADC-brokered summit
 

East Africa continues to underperform amid weakness Kenya and Mauritius

East African markets continued their bearish trend with Kenya and Mauritius leading the region lower. In USD terms, the NSE20 (Kenya) dropped –6.6% and the SEM-7 (Mauritius) declined –10.1% on the month. Mauritius remains a cause for concern as slowing tourism has begun to eat away at corporate profitability throughout the hotel/tourism sector. Nevertheless, we are encouraged by recent conversations with management as valuations have led to calls for industry consolidation. In Kenya, profit-taking continued as investors grapple with rising inflation and currency depreciation. We are selectively building positions into market weakness. Interestingly, periphery markets such as Tanzania and Uganda have performed well although we remain cautious given the overall lack of sufficient market liquidity.

Nigerian banking sector remains under pressure

West Africa performed poorly as weaker oil prices, rising inflation and an overall lack of investor confidence led to broadbased selling with the Nigerian banking sector a particular target for bears. The Nigeria All Share plummeted -10.02% on the month although the market rallied significantly into month-end on back of SEC announcement that it will implement trading curbs designed to increase liquidity and reduce transaction costs. It is our contention that these curbs undermine the long-term sustainability of Nigerian equities. In Cote d’Ivoire, a -6.35% decline in the Euro-linked CFA Franc forced regulators to step in and defend the market as the BRVM Composite declined -5.61% in USD terms. Generally speaking, Ghana remains the lone bright spot as equity price appreciation continues to outpace a decline in the Ghanaian Cedi.

Zimbabwe retraced last month’s gains following collapse of SADC-brokered summit

Southern Africa was relatively mixed on the month as poor performance in Zambia and Zimbabwe was offset by gains in Botswana and Malawi. Heightened FX speculation surrounding the death of Zambian President Levy Mwanawasa led to increased profit-taking on the Lusaka Stock Exchange. Despite general uncertainty surrounding the October presidential elections, we remain quite positive on Zambia’s underlying fundamentals as FDI remains strong and an improving BoP surplus will enable the Bank of Zambia to more solidly support the Kwacha against inflation. Zimbabwe remains particularly volatile as the highly anticipated SADC-brokered summit between Mugabe and Tsvangirai broke down at mid-month. Inflation has risen to an unfathomable 11.2 million percent as the troubled Zimbabwean economy has effectively “dollarized”.