As I write this our markets are again somewhat under the mercy of the major market quirks as investors try to figure out why stronger economic growth data is seemingly causing an indigestion in markets. I leave it to the ‘accredited’ experts to try to make sense out of all this as the main purpose of our update is to provide you with more visibility and insight into what drives the markets and the economies in Africa and the Middle East.
Let me again highlight that ,in our opinion, the contrast remains that while the major economies are still fuelled on policy support level, there are several economies in our region of focus that benefit from authentic internal growth drivers that are not always in need of extra stimulus. We continue to believe that investors will eventually realize this and embrace these markets for what they really are: long term growth economies. It’s only a matter of time until most investors will have to adjust their asset allocation to this undeniable reality.
During the month of August, in anticipation of a possible correction of the summer rally in the majors, we have been taking some profits across our holdings, thereby increasing our cash levels in both our Arab and African equity funds to levels of around 15% and 13% respectively. In hindsight, this decision seems to be paying off. Both funds arguably continue to be amongst the most diversified across markets and sectors within the fund peer groups. We retain the flexibility to invest in the right opportunities as they present themselves.
At last Botswana and Ghana now seem to be enjoying their long awaited market recovery, unfortunately circumstances are not letting them entirely have their day in the sun they were hoping for as Nigeria continues to cast a dark cloud over the Sub-Saharan Africa markets. Volatility remains high in the aftermath of the recent clean up by the Central Bank governor who dismissed the CEOs and published the names of the debtors of 5 poorly managed banks in Nigeria. Over the past weeks we have been very supportive of this development (check our blog archives). However, the current reality is that nervous investors continue to panic and reduce their position in many banks. We believe the market will remain volatile as many banks continue to show decline in Profit after Tax as a result of the increased provisioning required by the Central Bank of Nigeria but we also believe this may be a good opportunity for the long term investor to take positions in some stocks trading handsomely below their intrinsic values. We have positioned ourselves in Botswana and Ghana but our exposure is limited due to shallow market liquidity.
Regarding the MENA markets, a development, although not very influential to stock prices, caught our attention: Yahoo, the popular Internet search engine, agreed to buy Arabic-language Internet venture Maktoob.com as it seeks to enter the Middle East market. Yahoo did not disclose the terms of the agreement. The transaction is set to be completed in the fourth quarter of this year. This is interesting because Yahoo sees tremendous growth opportunities for Arabic content in the region and sees in excess of 30% annual growth in internet users in the region over the years to come.
On Monday, Saudi Arabia Monday approved the proposed Gulf Cooperation Council or GCC, monetary union agreement after the kingdom was chosen as the headquarters for the region’s central bank, the state-run Saudi Press Agency, or SPA, reported. The agreement has to be separately approved by each Gulf state. The United Arab Emirates, the second-largest Arab Gulf economy, has ditched the proposed union while Saudi, Qatar, Bahrain and Kuwait have said that they are determined to meet a 2010 target to introduce a single currency, In July, the kingdom’s advisory Shura Council approved the agreement, saying that the withdrawal of the U.A.E and Oman will not affect the future success of the planned Gulf central bank. The members also recommended that the council should initiate efforts to persuade the U.A.E. and Oman to reconsider their withdrawal.
For more detailed insight on the recent developments in our markets, please refer to the our monthly updates.
Finally, I would like to take this opportunity to announce another addition to the Silk Invest team. We are proud that Patrick Landi has decided to join us as our Head of Trading and Origination. Patrick joins us from Exotix and brings with him extensive experience in emerging markets and African fixed income and equities origination, trading and distribution. Please consult our website http://www.silkinvest.com/ for more information on his background. Patrick’s variety of skills will certainly help us further strengthen our proposition!
We look forward to keeping you updated.
Happy investing!
Baldwin
Comments on this entry are closed.