Monthly Highlights: October 2010

•  West African equity markets were this month’s primary contributor
•  East African equities performed well on back of continued strength in Mauritius
•  Southern African equities remain resilient as Zimbabwe was this month’s star performer
 

West African equity markets were this month’s primary contributor

West African equity markets were this month’s primary contributor as Nigeria remains a notable recipient of surging capital flows into global emerging market equities. The NSE ASI (Nigeria) rose +11.34% on the month as banks outperformed amid Q3/10 results from UBA, GTB, Stanbic, Access and Zenith, to name but a few. Generally speaking, bank sector results were broadly in-line with expectations as declining revenues were offset by rising profitability amid sharply reduced provisioning for NPLs. Looking ahead, we expect First Bank of Nigeria and Guaranty Trust Bank to outperform the Tier I banks whilst increased corporate activity is likely to stimulate investor interest in Tier II players and the “CBN managed banks”. Shifting to the consumer sector, Cadbury returned to profitability as cost controls resulted in margin expansion whilst Nestle continues to benefit from strong sales growth and improving fundamentals. Of note, investors purchased roughly USD 175 million of Dangote Cement as the newly restructured company’s implied USD 13.2 billion market capitalization makes it the largest counter in Sub-Saharan Africa ex-ZA. In Ghana, the GSE ASI was flat in October as the market digested Q3/10 earnings from GCB, SG-SSB, StanChart and CAL Bank. Generally speaking, net interest income from amongst the Tier I players improved significantly as the Ghanaian banking sector remains attractive given its potential for large and lucrative lending opportunities. In other action, the BRVM Composite rose by another +6.38% despite heightened political uncertainty surrounding the presidential elections in Cote d’Ivoire.

East African equities performed well on back of continued strength in Mauritius

East African equity markets rose on back of strength in Mauritius as the SEM-7 gained another +6.72% on the month. Mauritian tourist arrivals rose +8.7% YoY amid the ongoing recovery in global growth whilst shares of Naiade continue to trade well amid investor approval of the company’s combination rights offer and convertible bond sale. In Kenya, the NSE 20 went unchanged in October although this year’s performance remains impressive – up +33.81% YTD. Equity Bank posted yet another quarter of strong results as loan demand continues to rise with opportunities throughout the small and medium-sized business segment. Outside of the financial sector, East African Breweries completed its purchase of Tanzania-based Serengeti Breweries and now controls 28% of that nation’s beer market whilst Kenya Power & Lighting announced its proposed restructuring terms and forward-looking capital requirements. Elsewhere, the USE ASI (Uganda) was up another +6.74% as it remains one of the region’s best performers – up +29.25% YTD. By contrast, the DSEI (Tanzania) was flat on the month and remains one of the region’s worst performers – down -12.21% YTD.

Southern African equities remain resilient as Zimbabwe was this month’s star performer

In Southern Africa, performance was led by strength in Zimbabwe as the ZSE Industrial and Mining Indices rose +15.08% and +49.04% respectively. Econet Wireless released strong earnings growth (+55% YoY) and subscriber penetration (+31% YoY) as the operator’s share price rose +9.32% on the month. In the food & beverage sector, SABMiller announced that it will include its Zimbabwean operations when reporting results going forward. These results will include the company’s 36% ownership of Delta Corp, which have been excluded from the parent company since 2006. In Zambia, the LuSE ASI rose +4.43% on the month as inflation cooled and copper exports climbed (+24% YoY). Zanaco, the nation’s largest commercial bank, laid out plans to double its fleet of ATMs in Zambia and is considering expansion into private banking. In so doing, management is openly targeting an ROE of 25%. In other action, the Gaborone DCI (Botswana) remained unchanged whilst the MSE DCI (Malawi) retraced by -0.62% on the month.