African Thoughts: May 28, 2012

All the global issues persist, Greece with lots of mixed signals, Euro summit making very little difference, Germany and France still remain unable to come to an agreement regarding Euro Bonds and the concerns over a China slowdown persist.

Zimbabwe:

As is often the case, Zimbabwe’s mining index appeared on top of one of the lists. Given the illiquid nature of the index, movements by only a few or even one name result in large movements in the index. There were no real changes in price but rather just adjustments to the bids and offers that meant the index advanced as much as it did.

The mainstream industrial index made a healthy gain of +1.09% WoW, driven by a +10% gain in Innscor which accounts for 9% of the index. What was most interesting though is the increased foreign participation in the market. Foreigners were most interested in Delta and Econet and given the dollar based economy in Zimbabwe there is no currency risk associated with investment in the market which is a desirable advantage and especially so given the bleak global picture.

Ghana:

Ghana, although investors like the Ghana story this is not really translating into movement and activity in the stock, market meaning Ghana remains one of our least active exchanges. To make matters worse for the equities market, the week saw another rise in rates, the 91-day treasury bill rate shot up by approximately 200bps to 19.36% while the 182-day bill advanced 300bps to 20.2%. This would appear to be as a result of the BOG trying to stabilize the cedi. Pressure from institutions demanding forex to cover import bills contributes immensely to fall of the cedi, year to date the cedi has depreciated by -16.37% against the dollar. The 3 year bond was oversubscribed and attracted bids from offshore meaning that investors are still confident in the Ghanaian economy.

Egypt:

Egypt, market trading last week was static on very low volumes, the HUGE event was the presidential election, as many awaited the first post-revolution with anxiety, local and Gulf Corporation Council investors started to increase their exposure in the market, targeting mostly real-estate and telecoms. This came on the back of optimism towards the election and investors benefiting from the recent market weakness. The elections will continue to be the focus going forward, the second round of elections the 16th & 17th of June. All things being equal Egypt will have a president by the 1st of July. The reforms will then be known and stability or the lack thereof will be more easily gauged.

Malawi:

Malawi, last week features atop the biggest losers with a -3.5% gain in dollar terms but only -0.1% in local terms. NBS and NITL carried the market afloat, while MPICO weighed it down. NITL results were being expected by the market and have been released today with significant recovery and improvements in earnings as the market rebounds. MPICO has also rebounded today from a fall to MwK2.50/share up to MwK2.70/share. Rise in interest rates after bank rate adjustment and devaluation fuelled inflation could stifle a bull run momentum. However, there is still optimism that the market will give better than 2011 results and returns. Banking sectors stocks, ILLOVO, NITL, NICO and Old Mutual could be the drivers of a bull run. Performance on hospitality stocks and Real Insurance as well as TNM will probably continue to be subdued for various reasons including high operating costs and shrinking business.

Nigeria:

Nigeria, trading activities were dominated by the bears as investors were cautiously bargain hunting. We saw some repositioning from investors who had exited positions. CBN kept its monetary policy rate on hold at 12% for the 4th time in effort to balance inflationary concerns with slowing growth as the basis for retention. GDP figure of Q1 which was 6.17% (down:Q1-2011 6.80%). Pencom initiated the move to ensure PFA’s invest a 10% minimum in equities. There has always been a rule of a maximum of 25%. This development is expected to buoy the market with an inflow of new funds. Oando released negative results with Topline figures down by over 70%; the initial market reaction resulted in a downward trend that lasted for 2 trading sessions. We saw a share price appreciation for the rest of the week. Going forward bearish sentiments are expected to continue through this week as we are not expecting any major earnings results are other catalysts. Domestic Investors are still bullish on Fixed Income and a few foreign investors were also active. Nigeria is closed tomorrow. We also expect to see more repositioning strategies exercised on the back of the Pencom news. If PFA’s return to the market before the close of H2 (an unlikely occurrence, but worth hoping for), then we might just see some improved liquidity in the system.

Kenya:

Kenya, there were some results from the banking sector that surprised on the upside. Co-op Bank announced 1Q12 results posting a 19.3% growth in EPS. The market in general experienced profit taking and closed the week -3% lower in USD terms and -1.8% in local terms. Book closure for KCB was last week and the name was one of the leading losers for the week. There is very little in the short term to suggest that the activity or momentum will shift dramatically and the market is also closed on Friday.