African Thoughts: May 07, 2012

Last week we saw a distinct weakness across global markets. Most of this sell off came on Friday after US Non-Farm Payrolls came out worse than expected. Despite a slight improvement in unemployment the drop in NFP had a negative effect on world markets. The other global news is the election of Francois Hollande as French President signaling a socialist government in Europe’s 2nd biggest economy for the first time in 17 years. In general, African markets had a strong week, although please remember that most African markets had already closed for the week before NFP came out. Also worth remembering that in Africa, the correlation between risk aversion normally manifests itself in low volumes.

The most pleasing aspect of the past week was the massive interest and pick up in volumes in the 2 major markets in Sub Saharan Africa, viz Nigeria and Kenya. And not only did they trade on improved volumes, but they were also the 2 top performing markets across the continent. All African markets were closed on Tuesday 1 May for Workers’ Day celebrations.

BEST:

Nigeria:

Banks, banks, and more banks. 83% of last week’s activity was attributed to the financial services sector. Banks also rocketed the NSE with the BNK10 closing up 7.95% for the week. Demand for the banks came from both foreign and domestic institutions, and this demand was driven after most banks announced results. Banks that announced included Zenith, GTB, Skye Bank, ETI, Access, FCMB and First Bank. In general, these results were all better than expected and investors reacted very positively to the results. For days on end, particularly in FBN and Access, we saw the stocks with strong bids at limit up, throwing more credence on scrapping the +-5% daily limit rule. Results also came out for Nestle, Guinness, UACN and Wapco. There was also a story out about South Africa’s Tiger Brands looking to buy a stake in Dangote Flour which meant that Dangflou closed up 8.97% for the week.

Kenya:

As mentioned earlier, improved volumes across the board in Nairobi. EABL was the most active for the week, with foreign activity dominating both sides of the market. EABL closed up 1.89% at KES216 for the week. During the week we also saw the MPC come out with unchanged CBR of 18%, meaning that banks still have to factor in high funding costs. Despite this, EqBnk and KNCB both followed the market north as EqBnk closed +1.22% at KES20.75 and KNCB closed up 6.67% at KES24.00. Most of the demand came from foreign investors although local investors were also buying. Safcom are due to announce results later this week so we expect some focus to be centered on the name. Expectations are for a drop in net earnings as high operating costs and forex losses affected the company.

Zambia:

The LuSE actually closed flat for the week although the movement in the kwacha meant in USD terms the index was up 1.2% for the week. Most notable was that trading volumes were down by 50%, the main cause of which was the implementation of the bonus shares for Zanaco and Stanchart, with both names being suspended.

Egypt:

The EGX30 had a good week, although news flow was very light as was trading volumes. The only real news to note is the OCIC de-merger, which is an expected catalyst for the name. The split is due to be finalized at an 85/15 ratio between the fertilizer and construction businesses. The de-merger will happen by reducing the par value of the company’s issues shares and issuing new shares in Orascom Engineering and Construction, which will be equal to the amount deducted from the par value of the company’s shares.

Morocco:

The MASI increased by 82bps, mostly driven up by HPH (+5.72%), INVOLYS (+5.56%) and MEDIACO MOROCCO (+5.13%). Local colour is that investors feel that some stocks are looking attractive due to the softness of the market in recent months.

WORST:

Zimbabwe Mining:

The main index in Zim finished the week unchanged, mostly due to strength in Econet (+3.72%, $3.90 – local buying returned after recent results announcement) and Delta (+1.47%, $0.69 – parent group SABMiller indicating that Delta achieved 23% volume growth v expected of 20%). Most other large cap names continued to trade south as investor sentiment struggles over the indigenization empowerment implementation, the lack of clarity on the constitution making process as well as a less optimistic view on 2012 GDP growth. The mining index was the worst performer across the entire continent. Whilst Bindura closed up 13.38%, we saw drops in the other 3 stocks in the index – RioZim -3.45%, Hwange -10% and Falgold -2.82%.

Tunisia:

The main index in Zim finished the week unchanged, mostly due to strength in Econet (+3.72%, $3.90 – local buying returned after recent results announcement) and Delta (+1.47%, $0.69 – parent group SABMiller indicating that Delta achieved 23% volume growth v expected of 20%). Most other large cap names continued to trade south as investor sentiment struggles over the indigenization empowerment implementation, the lack of clarity on the constitution making process as well as a less optimistic view on 2012 GDP growth. The mining index was the worst performer across the entire continent. Whilst Bindura closed up 13.38%, we saw drops in the other 3 stocks in the index – RioZim -3.45%, Hwange -10% and Falgold -2.82%.

Tanzania:

The DSE closed down 60bps in local shilling terms despite an improvement in trading volumes. The market continues its bearish trend as foreign participation continues to be light. CRDB (-1.8%) and TBL (-9.1%) were the biggest drags on the Dar exchange. Due out shortly are the banks’ Q1 results and 2011 dividend announcements. Hopefully this will help spur some interest.