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Africa Equity Opportunities Fund - April 2019

African equity markets are starting to gain after recent lows.Summary
  • Except for Kenya, African markets took a breather in March, with the MSCI Emerging and Frontier Markets Africa excluding South Africa (MSCI EFM Africa ex SA) Index declining 1.2% in the month.
  • Morocco is the largest weighted market in the Index and shares there declined a further 2.3% in March making it the biggest drag on the Index in the month.The Fund has no direct exposure to Morocco.
  • In Kenya, Index heavy weight Safaricom, gained 5.1% and was the single biggest positive return in the month.The biggest contributor to the weak month was Nigerian Breweries that declined 16.3%. The Fund does not have exposure to either of these stocks.
  • The Fund’s stock picking gains in Egypt, where the portfolio gained 3.0% against the Index stocks 0.9% decline, were largely offset by weaker gains in Kenya and declines in oil and gas in Nigeria, where Lekoil declined 28.9% and was the Fund’s biggest drag in the month.

Africa is not a country

As all Africa followers know, the continent consists of 54 countries, each with its own unique strengths and economies.

On the political front, the Arab Spring that started with the Jasmine Revolution in Tunisia in December 2010, resulted in revolutions in Egypt and a civil war in Libya.  However, Algeria and Morocco have to date been relatively unaffected by similar trends.  Recent ongoing protests in Algeria against the long serving (20 years) President Abdelaziz Bouteflika were reminiscent of the Jasmine Revolution and have seen him resign ahead of the upcoming elections that were originally scheduled in April.  Concerns for the ruling parties in Sub Saharan Africa that the Arab Spring would spread to other parts of the continent have so far not materialised.

On the economic front we wrote in our January factsheet how the stars are aligning for Egypt.  Although we had not expected a rate cut in the first half of the year, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) surprised with a 100 bps cut at its February meeting. After surprising the market last month the CBE MPC kept rates on hold at its March meeting, but we expect more cuts during the year due to the steadily improving macroeconomic conditions.  In contrast, Nigeria is struggling to recover from its recession in 2016 and consumer spending is still severely depressed. Nigeria’s real GDP growth is expected to reach 2.4% by 2020, a severe drag on West African growth as Nigeria accounts for about 75% of the West Africa economy according to the African Development Bank (AfDB). The MPC of the Central Bank of Nigeria surprised markets when it announced a 50 bps cut in the policy rate to 13.5% on 27 March, the first adjustment since the middle of 2016.

In the AfDB’s African Economic Outlook 2019, they group the continent into 5 regions.  The graph below shows how different the growth is for different regions across the continent.

Real GDP growth

AEO graph

Source: African Development Bank statistics, African Economic Outlook January 2019

East Africa is the fastest growing region followed by North Africa.  As already mentioned, West Africa is dragged weaker by Nigeria and the Southern Africa region is similarly affected by the slow growth of South Africa.  Real GDP growth for South Africa is only expected to reach 2.0% by 2020.

Although the Ashburton Africa Equity Opportunities Fund is benchmark agnostic, it uses the MSCI EFM Africa ex SA Index for comparative returns and exposure.  The size and liquidity of equity markets across the continent also vary considerably, and this accounts for the difference in weightings.

By way of comparison, the following table follows the groupings that the AfDB has used and shows the Index and Africa Equity Opportunities Fund exposures. 

Exposure (percent)



East Africa



North Africa



West Africa



Southern Africa



Central Africa




As mentioned at the start, Africa is not a country, but a continent.  Investing across the continent requires a detailed understanding of the trends and drivers of different economies and regions as well as the specific listed companies.  There are however very good opportunities in fast growing economies. 


African equity markets are starting to gain after recent lows.  Meanwhile growth has been continuing for many of the underlying businesses and thus there is clearly impetus for significant future returns through active management and stock selection. Lower interest rates should provide further support for valuations, especially in Egypt. The current economic conditions should be positive for equity markets that will also start anticipating generally improved economic outlooks for the continent in 2019 and beyond.