The Nigerian and Kenyan markets are starting the year with strength! We are happy spectators as these are two of our most active bets in term of asset allocation. You may remember how we have been making the case for these markets over the past few months and how we felt it was important to be patient considering the big upside these market may deliver if they catch up with other emerging markets.
One of the main reasons why Kenya failed to perform last year was that of an overhang of positions by foreign investors that eagerly invested on client demand back in early 2008. Now that this technical issue has largely been sorted out, the market is again coming in line with the country’s compelling fundamentals.
We used a lot of ink on Nigeria last year as there was clearly very much to write about (check our blog archive). We feel we had good insight into the reasons for last year’s underperformance and saw it as great entry point for long term investors like ourselves. However, there will be volatility in this market as colourful tabloids and their loud headlines speculate on the fate of the president Yar’Adua, who is currently taken ill in Saudi Arabia. This puts sentiment in higher gear. We continue to believe there is a high return potential for this market and that this is a great level to build a position. Foreigners have been showing interest in buying up distressed banks in the country. This makes sense, there are more than 150 million consumers in Nigeria (and 3-4 million new ones are born every year) and most of these people still need to access the financial services industry for the first time. A genuine growth market that can be entered at a handsome discount! This could well signal the beginning of the next major chapter in the development of Nigerian banking, a more joyful one for a change.
Ghana’s campaign against inflation seems to be on track. The Government achieved the 2009 objective of 15% and aims to continue to force the number down further. An appreciating currency is helping in this regard.
We have previously discussed the difference between the ways India and China are involved in Africa, but we noticed that India is clearly taking a top-down approach in Botswana by way of a line of credit and for investment in its social and infrastructure sectors. The grant is expected to increase trade co-operation between the countries and also help Botswana to further invest in social sector projects in agriculture, health and education.
With regards to North Africa, foreigners have been seen as the buyers in Egyptian stocks last week. This market has performed very well in 2009 and this may be luring more investors. Tunisia plans to sell shares in 12 state-owned companies this year including a steel firm and the national oil distributor. The Tunisian government has sold shares in only one state-owned firm in 2009, and this year’s much bigger privatization suggested the government was speeding up plans to further liberalize the economy as it tries to boost growth.
Did you know that in Kenya you no longer need a bank card to withdraw cash from an ATM? In an innovative move, Kenya’s mobile operator Safaricom is teaming up with Ecobank to enable a service where customers can withdraw money from ATM’s by using their mobile phone. I can’t help wonder why we can’t get that kind of service in Europe?
With regards to the Middle East, Dubai dropped by more than 7% last week, it looks like investors are much focusing on the dark side of the news flow. Foreigners are buying Qatari stocks, they are probably drawn to market by the news of a dazzling 24.5% GDP growth forecast that are being put out as of recently.
Last week saw investors shifting back into the fixed income frontier space, with nearly all markets seeing spread tightening. In Dubai the market edged higher, albeit still well off its highs of pre-November last year. Investors in Nigeria largely ignored the ill-health of President Yar’Adua, while Qatar traded flat across the yield curve and South Africa showed moderate gains. The stars of the week were the Kazakh banks, where we saw our investments continue to rally, driven in part by positive signs that the sector restructuring is finally being digested by the market. Our diversified investment approach has done extraordinary well during the volatile past few weeks. Please have a look at our weekly fixed income update for more details.
Finally, the Economist Intelligence Unit (EIU) produced a top 20 list of the projected fastest and slowest growing economies. The Silk Road target geographies encompassed 19 of the 20 fastest growing economies!
There is more about all this in our weekly updates. I hope you can find the time to read them and that they will provide you with further insight into our markets.
With kind regards
The Silk Invest Team
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