Monthly Highlights: September 2009

•  Above average returns led by gains in Ghana & Mauritius
•  Mauritius performed well on back of strong bank sector earnings
•  Ghana rebounded although inflationary pressures persist
•  Southern Africa broadly higher on the month
 

Above average returns led by gains in Ghana & Mauritius

Strong returns led by gains in Ghana and Mauritius as emerging market inflows rebound amid increased speculation for a prolonged slide in the US Dollar. As developed economies struggle through a slow and difficult recovery, the medium-term trajectory for global growth will weigh heavily on demand and consumption patterns across the emerging markets. Rising per capita income and a rapidly expanding middle class are the primary drivers of this shift in aggregate demand. Within Africa, we take note of the broader consumption patterns evident in such sectors as food & beverages, telecommunications and consumer goods. Certainly, we remain quite bullish on African brewers as share prices do not yet reflect strong forward-looking earnings growth and the overall resilience in underlying fundamentals. Furthermore, M&A activity has begun to heat up, and large global players are aggressively looking to expand their African footprints. In telecommunications, industry leaders have been forced to contend with increased competition as greater pricing pressure has led to large share price declines. Nevertheless, subscriber penetration remains healthy and a shift away from handset and airtime subsidization will likely result in more attractive EBITDA margins for those with strong mobile banking and data footprints. Despite the overall decline in disposable income, demand for consumer goods remains strong although trends remain highly localized and vary from country to country. On the whole, we remain encouraged by the performance of these three sectors with many of the underlying African companies posting strong results despite the challenging operating environment.

Mauritius performed well on back of strong bank sector earnings

In East Africa, equity market performance was led by Mauritius as declining inflation and better-than-expected bank earnings drove the SEMDEX up +14.6% on the month. Inflation plummeted to a multi-year low of 1.0% y/y in August amid continued Rupee appreciation and slack domestic demand. Generally speaking, the market exhibited strong earnings results across the board with MCB and SBM the primary contributors. Yet despite the recent strength in Mauritian equities, investor optimism may well persist as the island’s medium-term outlook continues to improve. The official launch of Jin Fei, the widely anticipated Mauritius-China multi-sector economic zone project, promises to generate more than 34,000 local jobs over the next six years. In addition, the 2010 World Cup will likely result in sizeable tourist inflows as Mauritius is expected to serve as a primary training facility for a number of participating nations. In fact, FIFA has already booked a number of hotel rooms and Air Mauritius will increase its number of seats by 14,500 in anticipation of a substantial increase in tourist traffic. Shifting to Kenya, the NSE20 declined by –0.86% amid relatively uninspiring earnings results from Mumias Sugar and Scangroup. Despite healthy top-line growth from Access Kenya, we remain cautious given the potential for increased competition throughout the telecom sector. Of note, visitors rose by 48% over the first six months of the year as Kenya’s tourism sector appears to have normalised following last year’s post-election strife. In Tanzania, the DSEI rose +1.01% despite a broad-based rise in consumer prices and the second consecutive month of rising inflation. In other action, the USE (Uganda) fell –1.73% amid generally thin trading volumes.

Ghana rebounded although inflationary pressures persist

In West Africa, performance was led by gains in Ghana as the GSE ASI rose +7.56% on the month. Ghanaian inflation fell to 19.7% y/y although core prices continue to rise on the heels of sharp Cedi depreciation throughout the first half of 2009. Despite a declining current account deficit and increased IMF/World Bank support, Ghanaian inflationary pressure is expected to persist over the short-term. Shifting to Nigeria, the NSE ASI declined by -1.38% as the Central Bank of Nigeria (CBN) left rates unchanged at 6.0% while investors await the second set of bank audit results in early October. Of note, Nigerian banks which have successfully passed the CBN audit are presently exhibiting considerably higher deposit growth when compared to their respective peers. Within the banking sector, Guaranty Trust Bank held onto recent gains despite this month’s announcement of USD 138 million in bad loan provisions. It should be noted that a number of companies released 4th quarter forecasts in September with Nigerian Breweries, Nigerian Bottling Company and Unilever Nigeria offering generally conservative forward-looking guidance. In other action, the BRVM Composite (Francophone) rose +0.27% amid generally thin trading volumes.

Southern Africa broadly higher on the month

In Southern Africa, equity market strength was broad-based with the ZSE Industrial (Zimbabwe) up +15.33%, Gaborone DCI (Botswana) up +5.65%, NSX Local (Namibia) up +3.39%, LuSE ASI (Zambia) up +2.35% and MSE DCI (Malawi) up +0.16%. In Botswana, inflation rose to 6.1% y/y although consumer prices remain just shy of multi-year lows. Since December 2008, the Bank of Botswana has eased rates by 450bp amid an improved inflation outlook and declining global growth. In Zambia, performance continues to be driven by demand from China, the weaker US Dollar and improved market sentiment as exports surged with the nation recording a trade surplus for the second consecutive month.