African Thoughts: June 11, 2012

As the global sentiment seesaws almost by the day we take a look at the best and worst performing markets in our universe.

Nigeria:

Nigeria, was the worst performing market -4.8% in local currency terms and -6.3% in USD terms. The familiar scenario where weak volumes persist as international players (account for +/- 80% of the Nigerian market activity) sit on the sidelines in these risk-off and uncertain times. There was not much in the news which meant that the volumes were further depressed. The worst performers included, Sterling Bank, Unity, Access, GTB, Dangote Cement, UACN and Ashaka Cement. Going Forward we are expecting another quiet week this week (similar to last week). For the first time, the index has dropped below its 200-day moving average of 20,928.76. The decline was precipitated by drops in the prices of Dang Cem (-9.13%) and NB (-8.57%), which combined account for over 20% of total market capitalization. Major News: ex-Bayelsa State governor, Timipre Sylva was detained on a six count charge relating to an alleged N2 billion loan secured from Union Bank Plc, purportedly for the augmentation of the salary of the state’s civil servants. Nigerian civil aviation authority suspended the operating license of Local Airline operator, Dana Airways after a deadly crash into residential area of Lagos State claimed lives of all 153 passengers on board.

Malawi:

Malawi, last week was lukewarm as supply constraints continue to hamper meaningful volumes, resulting in flat indices. There is demand across all but 5 counters with supply a challenge. Institutional presence on the buy side in the market has led to this situation. The removal of Capital Gains Tax applied last year, reverting its application only to shares held for less than 1 year is a positive sign. The 2012/13 Fiscal Budget looks supportive of the private sector, which should see improved performances of corporates. Opportunities should start to open up to see robust results, especially if donors support forex availability with early disbursements to take out Fx drought overhangs. Tobacco prices have been far better than the last couple of years, save for lower output.

Botswana:

Botswana increased +1.7% in local terms and +0.9% in USD terms. The market was active, relatively speaking, particularly on Wednesday. The pattern of trading, with nearly every stock trading suggesting a rebalancing of portfolios by institutions. The DCI went up by +0.86%. Overall, appetite for the banks and a few selected stocks like BIHL, Sechaba and Turnstar is quite high, with no signs of any blocks coming available.

Kenya:

Kenya advanced +1.4% in USD terms but lost -0.3% in local terms. Top movers were broadly unchanged but there was profit taking on Equity Bank. There was also some upward movement on Safaricom (driven by improved foreign investor demand with little supply on the counter). Safaricom has initiated a pricing promotion in which it is charging the same fee across its network, ahead of the July 2012 reduction in the Mobile Termination Rate (MTR) rate from KES 2.21 to KEDS 1.60. Other telcos, notably Airtel are also doing the same. The negotiated MTR rate of 1.60 was slightly higher than competitors of Safaricom would have preferred (KES 1.44). Equity Turnover was up +16% w/w to USD 18m mainly driven by strong foreign investor demand in EABL. There has been active trading on the brewer ahead of FY12 results for the period ending June with some key institutions continuing to reposition their books. The brewer traded slightly lower on Friday after the Alcoholic Drinks Control Act legislator mentioned he was looking to bring in a new amendment to raise the drinking age limit to 21 year (from 18). The stock has had a very good run and although the company is expected to release a very strong performance (+70% growth in net profits), there is a strong argument put forward suggesting that the earnings growth is fully priced in. BAT Tobacco announces 1H12 results in the next week with the comparison being against a period when the tax regulatory environment was negative (tax law amended in June 2011 leading to the improved performance by FY11). During the week, there was talk about taxes on tobacco being raised as tobacco consumption in the country was still growing. The stock eased -2.3% during the week. The budget will be read this week on Thursday, 14 June. Taxation measures could be introduced to both the alcoholic and tobacco industries. The Monetary Policy Committee held its benchmark Central Bank Rate unchanged at 18% during the week. This was a surprise to some as there were indications of a reduction. The decision might well have been driven by the Central Bank’s concern about weakening of the KES, especially during a week when the USD was having a strong rally.

Zimbabwe:

Zimbabwe managed to advance last week, trading remains heavily skewed towards the blue chip counters, Delta and Econet. In terms of turnover contribution, these two counters were in the top five on a daily basis, during the week under review. The total turnover for the week was US$17.5 million. The indigenisation of the banking sector continues to be a bone of contention with the Minister of indigenization insisting that the sector be indigenized using the same approach that is being used for other sectors. However, the Reserve bank governor is advocating for an approach that empowers locals through supply contracts. On another note, the Securities Commission cancelled the licenses of Interfin Securities and Remo stockbrokers following the suspension and investigation of these stock broking firms for conducting nonpermisible activities. We expect foreigners to continue playing a major role on the market with demand concentrated in selected counters in which foreigners have found favor such as Econet, Delta and CBZ.

Ghana:

Ghana did not move much last week. The big topic of discussion in Ghana is the depreciation of the Cedi, year-to-date depreciation of the local currency stands at 19.69%, 17.55% and 11.74% against the dollar, pound and euro respectively. There are rumours that the Central Bank is planning to institute more stringent measures to curb the free-fall of the cedi. One such measure is to close all foreign accounts in the country for which purpose the bank is currently investigating the consequences that will follow. Dollarization, which already exists in the country, is expected to be on the rise considering the consistent depreciation of the cedi. Money market securities continue to take the shine out of stocks. The 91-day Treasury bill rate slipped from 20.68% to 20.21% while the 182-day Treasury bill rate advanced marginally from 20.68% to 20.99%.