The rough patch in the Middle East was extended this week. The Egyptian market suffered a strong reversal of fortune, a drop of 8.5% in the last week made it the MENA’s worst performing market.
Global contagion of negative sentiment is still clearly the driver of these markets and we believe these levels are good entry points for the investors who can see beyond the short term dynamics and recognize the appealing valuations across Africa and MENA. In fact, we continue to observe a small club of foreign investors putting money to work, especially in the Egyptian market – they are happily buying positions from local investors who are raising cash.
Other sharp corrections included Dubai, Qatar and Kuwait. A lower oil price and the concerns about the exposure of banks to the investor groups negatively impacted stock market performances. The Maghreb markets have posted mixed performance this week, with Tunisia succumbing to profit taking ahead of H1 09 results’ release, and Morocco surviving yet another week thanks strong support from local institutions. However, the Maghreb markets have experienced a sudden drop to around half the recent trading volume over the past 2 weeks. This is likely due to the seasonal drop in activity that is habitual for the summer holiday season.
With regards to Sub Saharan Africa, Both Ghana and Botswana enjoyed another positive week. These markets are playing catch-up after having been forgotten about as of recently. Mr. Obama’s visit and the IMF obviously have helped to position Ghana into the spotlight. It seems that, despite their notoriously shallow liquidity, foreign investors continue to build positions in these markets, not only are valuations attractive but there also may be good upside to be had in the respective currency markets. This is further evidence that some overseas capital continues to find its way into African markets – it is comforting to know that there are some investors out there that are thinking medium term. I guess it is needless to say that we continue to adhere to our constructive view of these markets.
It is entirely possible that local investors in our markets don’t have the benefit of a relative view on their own markets compared to those of the developed world which is facing real structural problems. Having said that, it is also true that even if investors from the high income countries see the value in our markets, it doesn’t automatically imply that they can find the courage to take a position. In our opinion, market analysts are too focused on the oil price while ignoring the fundamentals. It is pretty obvious that the fundamentals of many African and MENA economies are now the things that Europe and the US only can dream of having right now; low levels of debt and/or high levels of reserves. Add to this a vibrant population growth and the prospect of an improvement of lifestyle for this growing population which could lead to even more economic growth. Is this too simplistic, or even optimistic for our times? maybe, but what I do find increasingly amusing is when I hear about a ‘flight to quality’ into US Treasuries these days…
Please refer to this week’s updates for more detailed information:
With kind regards
Baldwin Berges
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