Summary

• November was a strong month across the continent with the only detractors being Egypt’s Commercial International Bank (-4.7%) and brewers in Nigeria (-10.7%). Following the re-run of Kenyan elections, this was the strongest market with shares gaining 7.9% in aggregate and the 8.6% rise in Safaricom the largest contributor the index gains in the month.  Morocco (2.7%) was the second largest contributor with returns aided by a strong dirham against a generally weaker US dollar in the month.
• The Fund outperformed strongly in Egypt and Mauritius. The Fund’s consumer shares in Egypt were once again the biggest contributor to the gains, led by Eastern Company (19.5%). Centum (11.6%) was the largest contributor in Kenya. The largest detractor from the Fund’s performance was Egypt’s Commercial International Bank where exposure was reduced during the month.

Market update - Politics, politics, politics… and a coup (or not)

After the September ruling by Kenya’s Supreme Court that the presidential elections had to be re-run, we have seen a very uncertain period in Kenyan politics.  Raila Odinga, the leader of the NASA opposition alliance, challenged the ability of the Independent Electoral and Boundaries Commission (IEBC) to manage and run the new election within the timeframe allowed. There were some resignations of key personnel at the IEBC but ultimately the elections were held on 26 October with the opposition boycotting the vote. President Uhuru Kenyatta won 98% of the vote with less than 40% of voters turning out at the polls. He was sworn in on 28 November.  With most of the political uncertainty gone we saw a strong rally in the equity market that gained 7.9% during November. Domestic demand added to international interest as domestic investors have been underweight equities due to the high real domestic interest rates. We remain positive on the Kenyan economy longer term and expect an improved business environment next year.

Zimbabwe has been in the news after Robert Mugabe, fired his First Vice-President, Emmerson Mnangagwa, on 6 November. Mnangagwa fled the country two days later, but it seems that he was involved in organising a takeover by the army starting on the evening of 14 November. The army tried hard to avoid the action being called a coup d’état as these are not recognised by the African Union or the regional South African Development Community. 

After a period of uncertainty, the party sacked Mugabe on 19 November and expelled his wife and 20 of her associates as party members. Emmerson Mnangagwa ultimately returned to Zimbabwe and was sworn in as president on the 24^th November.

The equity market in Zimbabwe had been rallying as investors sought to move US dollars stuck in bank accounts into real assets. As the shortage of physical US dollars increased, so did the stock market.  Counterintuitively this meant that when a more pragmatic and business friendly president was installed, the equity market actually fell. The Fund has no holdings in Zimbabwe.

Fund activity

The Fund has maintained its total exposures to Kenya and Nigeria broadly in line with the index, although the underlying holdings vary considerably. The Fund still has its largest exposure to Egypt, where the Egyptian pound has started strengthening. Morocco remains the Fund’s largest underweight as we view the market as expensive.

Outlook

With many economies across the continent on a recovery path and inflation declining, we expect interest rates to start coming down from the end of the fourth quarter. This will be positive for equity markets that will also start anticipating the generally improved economic outlook for the continent in 2018.