Mr. Sanusi, the new governor of the Central Bank of Nigeria (CBN) is clearly grabbing the bull by the horns! The CBN’s ousting of the CEO’s and executive directors of 5 Nigerian banks caught most of the attention for the African markets. The multiple sacking serves as a measure to deal with the problem of non-performing loans getting out of hand at these institutions. The CBN appointed interim management teams for each bank and injected just over N400 billion to cushion for these bad loans. The capital injection will take the form of a convertible loan from the CBN, which has no interest in ownership of the five banks. Trading in these stocks was suspended until further notice in order to protect investors. This will probably put further pressure on the markets in the short term.
We are happy to announce that Silk Invest has avoided investing in these embattled banks. More importantly, we believe that this bold action has taken care of 80% of the bad loan problem and it will help the financial system in the long run. It looks like the market still needs to digest what just has happened here. Our view is that, in time, this clearly presents a fantastic opportunity for the alert and well informed investor to invest in well managed companies that find themselves valued well below their intrinsic value. Needless to say we will be keeping an eye on these events in the days/weeks to come.
In the Middle East/ North Africa region there was, as always, plenty of news to keep everyone busy but nothing fresh that specifically caught our attention. Now that the reporting season pretty much lies in the past and with many market participants enjoying a holiday, the market seemed to take it rather easy. We expect activity to continue to be subdued in the coming weeks as the holy month of Ramadan starts sometime over the weekend. This doesn’t take away that we may be in for a bumpy week as markets feel quite frantic as I write this update.
During the past few days, we have been increasing our cash positions in the funds as it seemed likely that the recent upside was due to take a breather. Not only will this protect the fund in the event of a continued correction and/or increased market volatility, but it also buys us more flexibility to step into certain opportunities at better value.
This week we’d like to feature an overview of the year-to-date African markets performance. At a glance it becomes clear that it is difficult to generalize ‘investing in Africa’ as each market seems to have a life of its own. You will certainly observe that the performances of the MSCI EFM Index and the MSCI FM index are almost total opposites when it comes to performance. The reason for this is that the FM (which stands for Frontier Markets) excludes ‘heavy-weights’ such as South Africa, Egypt and Morocco, which have generally performed strongly over the past year. On the other Hand, the EFM index is dominated by South Africa, with a weighting in excess of 80%!
I am certain that you will be able to draw your own conclusions from the above and it may trigger a thought or two with regards to the merits of indexing for African markets. You have probably heard us says this many times before but we strongly believe that investors should always aim for a more evenly diversified approach where there is more space for top down asset allocation and bottom up stock selection when it comes to investing in Africa. Over the long run such an approach is likely to yield the desired returns in a more stable fashion…Our weekly updates can be accessed on our website.
We look forward to keeping you updated
With kind regards
Baldwin
Comments on this entry are closed.