Monthly Highlights: March 2009

•  East African outperformance led by Kenya and Mauritius
•  West African equity markets remain under pressure
•  Rand appreciation drove currency related strength across Southern Africa
 

East African outperformance led by Kenya and Mauritius

East African equity markets rebounded strongly in March with the NSE20 (Kenya) and SEM-7 (Mauritius) rising +13.35% and +19.41%, respectively. In Kenya, headline inflation remains a concern as the rate spiked to 25.1% in February amid rising food prices. Interestingly, the Central Bank of Kenya opted to cut its policy rate by 25bps to 8.25% as core prices moderated with the non-food index easing to 7.7% last month. Given the relative stability of currency and short-term interest rates, market participants appear quite comfortable with the recent policy decision. Equity markets benefited handsomely on the month with SAFCOM shares up +17.65% in March as the telecom giant reported subscriber growth of 11% and MPESA user growth of 20% since September. Telecom sector growth was further underpinned by MTN’s reported USD 450 million bid to purchase a stake in Econet Wireless Kenya. In Mauritius, the central bank eased rates by an additional 100bp to 5.75% as inflation fell to 4.6% in February. Furthermore, the Mauritian Central Statistics Office reduced its 2009 GDP forecast from 4.0% to 2.5% amid deteriorating prospects for the nation’s troubled tourism and textile sectors.

West African equity markets remain under pressure

West African equity markets plunged in March with the NSE All Share (Nigeria), BRVM Composite (Cote d’Ivoire) and GSE All Share (Ghana) declining by -15.08%, -11.09% and -5.99%, respectively. The Nigerian banking sector continues to impede performance with the Central Bank of Nigeria employing unconventional policy measures aimed at restoring investor confidence. Yet while the overhang of margin lending continues to weigh on domestic equity market performance, the Nigerian banking sector faces very real challenges in the months ahead as deteriorating net interest margins, slower deposit growth, reduced loan demand and overexposure to the energy and real estate sectors continue to weigh on overall profitability. In Cote d’Ivoire, the IMF approved a three-year USD 566 million loan under the Poverty Reduction & Growth Facility (PRGF) Program. Despite last year’s current account surplus, export volumes continue to decline and growth prospects remain muted. In Ghana, conditions remain challenging despite this month’s rebound in gold and cocoa prices. The nation’s currency and international reserves are likely to come under increased pressure as Ghana’s twin deficits result in further GHS depreciation and inflationary concern prevents the Bank of Ghana from easing policy rates anytime soon. Although the Ghanaian equity market has managed to hold up well, trading has been thin and the GSE may suffer sharp losses when liquidity returns.

Rand appreciation drove currency related strength across Southern Africa

In Southern Africa, commodity-related strength drove ZAR appreciation as the NSE Local (Namibia) and BSE DCI (Botswana) posted USD gains of +6.07% and +2.77%, respectively. Zambia remains under pressure with the LuSE All Share off -8.37% in local terms although ZMK posted its first gain in over six months. Notably, we heard whispers of improved export demand following this month’s Asian Mining Congress as LME Copper rose +17.14% and took out the psychological USD 4,000mt level. Nevertheless, risk of mine closures loom large and Zambia was forced to approach the IMF in order to buttress its dwindling foreign currency reserves. In Malawi, the Domestic Index fell -2.66% in March as liquidity conditions remain tight. Looking ahead, we expect a sharp devaluation in MWK following the May elections. We anticipate a devaluation of approximately -30% from the current level of 140.