African Thoughts: January 30, 2012

An interesting week last week in Africa as we near the end of the first month of 2012. While global risk oscillated and thus global markets ended the week mixed, the ZAR was very strong thus propping up the South African and Namibian exchanges. The most notable for us was the increased level of foreign participation which picked up as the week progressed. For the past few weeks/months most foreign investors have preferred to participate in trading via blocks but last week definitely saw foreign appetite for working orders return. We think this trend will continue as this week progresses as investors are now positioning themselves for the year ahead.

Please also make a note of the dates of our annual London conference, to be held at the Intercontinental Park Lane in London on 26/27 March. If you are interested please shout if you would like more information.

The good:

Egypt:

The biggest relief story thus far was the incredible performance of the Egyptian bourse last week, with the EGX30 up an incredible 15%. Also pleasing was that this rally was on the back of very strong volumes with volumes improving dramatically to reach a new 52-week high. Both local and foreign institutions were active, and this is probably due to the 25th Jan revolution anniversary having passed peacefully without any clashes to speak of. Activity was focused on the blue chips with COMI, OCIC, TMGH and ESRS all active.

SA/Namibia:

As always, these 2 indices closely track each other. Both indices were only marginally up but benefitted from the strong ZAR performance.

Kenya:

Last week saw some renewed participation from foreign investors which was the biggest talking point on the Nairobi. Most notable was the increased activity in banking stocks like KNCB, EQBNK and BCBL with most of this coming from foreign investors. Safcom also closed up strong at kes3.30 after a dip earlier in the week. In addition to the increased foreign participation, the local investors also picked up trading and this was mostly in the small-caps as interest rates begin to ease. Some key events are due this week with the inflation rate announcement expected later today and the Central Bank benchmark review due on Wed 1 Feb.

Tunisia:

While part of the reason for the outperformance can be attributed to some solid results that have been recently posted, most of this can be attributed to the strength carrying across from Egypt.

Morocco:

Without doubt the North African bourses rallied thanks to some contagion with Egypt. The only other trend of any note was the action that took place on the mining companies – Managem and CMT which both rallied on good vol. Typically they do well when the markets like precious metals.

The bad:

Zimbabwe Industrial:

(-2.9%): While the mining index closed the week unch, the main board dropped 2.93%, mostly hammered by Innscor (-8.17%), Hippo (-11.31%) and Delta (-2.86%). Together, these names account for 37% of the index. The financial reporting season is about to begin so the next couple of weeks should see some mixed trading as investors digest the results.

Malawi:

(-1.4% in USD terms); Selling pressure on FMB dragged the index south as it lost Mwk0.50 per share. As always, liquidity is a concern in the market and this counter. Local anticipation is for FY11 performance to be about 15% above FY10 performance which is considered not very exciting for most investors. Local reasoning is that rising inflation, speculation of a possible currency devaluation and the possibility of a rise in interest rates is the main cause behind the selling.

Mauritius:

The Semdex traded marginally down with some crosses going through boosting volumes. This can partly be attributed to both the IMF and the World Bank estimating Mauritian economic growth at 3.7% and 3.3% respectively as well as the Ministry of Finance estimating growth below the original estimate of 4%. The core reason for the reduction in estimates is because the Eurozone debt crisis is expected to continue to have a direct impact on Mauritius, particularly in manufacturing and tourism. On the positive side, Mr Duval made a provision of Rs7.3bn into a National Resilience Fund as a means of assistance to companies should the economic situation persist.