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Africa Equity Opportunities Fund - December 2018

African markets were flat in the month, with strength in Morocco being offset by weakness in Nigeria and Egypt.


  • African markets were flat in the month, with strength in Morocco being offset by weakness in Nigeria and Egypt. In Morocco all sectors were up except for resources and insurance. Attijariwafa Bank and LafargeHolcim Maroc were the largest contributors to performance up 7.8% and 8.7% respectively. In Egypt, the largest driver of weakness was Commercial International Bank which ended the month down 7.0% and makes up 14.6% of the MSCI Emerging Frontier Markets Africa ex South Africa Index (the Index). In Nigeria, market weakness was driven by banks and financials which were down 5.5%, building and construction which was down 12.7% and oil and gas which was down 4.8%.
  • The Fund’s underperformance in the month was mainly from its overweight Nigerian oil and gas sector which was down 13.7%, largely due to Lekoil which was down 34.5% in the month. In addition, the Fund is underweight to Morocco which has contributed 1.1% to Index performance. The Fund outperformed in Egypt due to its underweight Commercial International Bank position and overweight telecoms position as Global Telecom ended the month up 33.9%.

Fund activity

With generally weaker markets, we have not seen large variations in market performance. With no shares rallying strongly towards our fair values, very little change has been made to the portfolio. The Fund still has its largest exposure to Egypt, while Morocco remains the Fund’s largest underweight as we view the market as expensive.

Market update

As we head towards the end of 2018, it is useful to look at how markets have performed this year so far.  It has been a particularly volatile time in global markets generally, which has been accentuated by political uncertainty in some major economies.  As we have said before, the economies on the continent are transforming and it is this transformation that is driving a large portion of the growth.  While global growth and higher commodity prices are supportive factors for these economies, they are not a requirement.  These economies have therefore been relatively unaffected by global events, and this is probably best reflected in the currency movements we have seen since the beginning of the year.  The following chart shows these movements as well as the range.

Source: Bloomberg, Ashburton Investments

The countries with larger investable equity markets have had the most stable currencies, notably Kenya (KES), Egypt (EGP), Nigeria (NGN) and Morocco (MAD). This is particularly notable when comparing them to the United Kingdom (GPB), Europe (EUR) and South Africa (ZAR). Countries with smaller equity markets like Tunisia (TND), Ghana (GHS) and Botswana (BWP) have been more volatile.

The next chart shows the market movements that we have seen across the continent compared to some major global markets as well as some of the MSCI groupings.  These are shown in US dollar terms for comparison, but the larger African markets have similar local currency returns because of their stable currencies.

Source: Bloomberg, Ashburton Investments

As expected, the United States equity market has been one of the best performing this year. African markets excluding South Africa have declined 15.3%. This compares to MSCI Emerging Markets Index, down 14.4% and MSCI Frontier markets Index, down 17.0%. Egypt and Morocco have done better than the FTSE100, while Kenya and Nigeria have been weaker. South Africa’s JSE Index is shown for comparison although it falls outside of the Africa excluding South Africa universe.  Many investors are not aware that over the long-term, African equity markets excluding SA, have outperformed developed, emerging and, frontier markets as well as the S&P 500 Index. In addition, the volatility of these returns has been similar to those for developed markets.

Of course, no one would invest in Africa, or any asset for that matter, based on historic returns. Investors need to believe that the continent has improving economic growth, better business environments and more stable politics. This is another area where misconceptions arise. The news pertaining to Africa typically focus on the worst issues and incidents that occur on the continent. A foreigner whose main source of information is the news media, would conclude that the continent is characterised by violence, political instability and weak governance. However, on the ground and across the continent, growth is continuing and infrastructure and business conditions are improving. As investors who travel across the continent regularly we observe these trends first hand, but these are also clear from surveys and economic measures.

We believe that investors should invest a portion of their portfolios over the medium to longer-term in African equities to benefit from this strongly growing region.


With equity markets in Africa close to their five years lows, growth has been continuing for many of the underlying businesses over that period, there is clearly impetus for significant future returns through active management and stock selection. Lower interest rates should provide further support for valuations, although as mentioned before, central banks are being cautious. The current economic conditions should be positive for equity markets that will also start anticipating the generally improved economic outlook for the continent in 2019 and beyond.