I had the pleasure to listen to and network with some of the leading personalities and minds in global finance in Istanbul over the weekend on the occasion of the IMF and IIF gatherings. While we don’t attempt to provide a global markets outlook in this letter, I would summarize what I took away from the summit in two main points: First of all, everybody was in agreement that the global economy is indeed shifting towards emerging markets. This is music to our ears because that is exactly what Silk Invest was founded on in the first place. Secondly, nobody seemed to be worried about inflation and a good number of personalities even seemed concerned about deflation, especially in the US. I am by no means an expert in macro economics, but I can’t help expressing that I personally found this bit confusing given the recent record amount of fresh money has been printed and the fact that debt seems only to be piling up in the developed economies. If they are right about this, will ongoing lower interest rates push more developed world investors into emerging markets? The launch of our Silk Road Income Fund (Africa, Middle Eastern and Central Asian Fixed Income) may turn out be very timely indeed!
For a financial summit that takes place after a global financial crisis there was also a good amount of rhetoric and soul-searching about regulatory and ethical issues. Then again, I guess that goes unsaid
The month of September for African and Middle Eastern markets turned out to be positive. It seems to us that the Nigerian market may be finding its bottom and I think we heard the ‘thud’ of hitting (or skitting across) the surface we were speaking about a few weeks ago. The loss of confidence in the market has its origin in the country’s most active sub-sector, the banking sector. Since August, the market has been in a state of chaos as a result of the outcome of the audit exercise of the banks carried out by the regulatory authorities. This revealed that a number of financial institutions were involved in serious corporate governance breaches. The market was gripped in uncertainty as the initial investigation centered on only five banks. This led to a degree of apprehension regarding the remaining banks. While the Nigerian market was the month’s worst performing African market, there was considerable strength during the past few days. We don’t discard more volatility in the next few weeks as local investors gradually need to let go of their negative sentiment and come to terms with the attractive valuation of their market. It will probably take a few more known and respected foreign investors to take positions in order to trigger this change in mindset.
Mauritius, Ghana and Tunisia posted strong returns over the period. Ghana’s rise was mostly fuelled by a few larger names that had posted strong earnings earlier on. Another driver was the announcement of rights issuance of shares by banks, based on the recapitalisation exercise currently under way in Ghana. Both local and foreign investors increased their holdings in these banks in order to be able to participate in the forthcoming offers. Its still a tiny market, but things are going in the right direction.
In North Africa, and the Middle East much of September was marked by lower business activity due to Ramadan. However, Tunisia rocketed on to new record highs while Egypt and Morocco seemed to take a breather. Worth highlighting are a few interesting developments; The Central Bank of Egypt is in the process of finalizing new regulations for mobile banking services. An initial framework was outlined for mobile banking. The service providers are all positioned to take part in this innovative way of bringing finance services closer to the wider population. I can’t stop wondering why we still can’t use my phone for financial transactions in Europe, I have to go to Africa to enjoy that experience!
In Morrocco, Attijarwafa bank continues with its conquest of the financial services sector in Western and Sub-Saharan Africa. It announced that it had acquired majority stakes in Credit Agricole’s two African operations, Credit du Congo and Union Gabonaise de Banque. The transactions are part of an agreement signed on 25 November 2008 pertaining to the acquisition by Attijariwafa Bank of majority stakes in Credit Agricole’s five Sub‐Saharan African banks. It is a creative deal, there is more detail about this in this month’s update (link below).
As is habitual, we saw another end-of-Ramadan rally in most GCC markets, especially those in the UAE and Saudi Arabia which posted stellar performances. You probably know that we have been making the case that these markets are undervalued for some time. Investors seem to be coming to terms with the fact that despite the flow of negative news, especially in the financial sector, things aren’t all that bad in the region.A more detailed report can be found in our attached monthly updates.
We look forward to keeping you updated
Baldwin
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