Despite a drop of the South African Market, most likely on the back of weaker commodities, the other African markets of our focus generally posted strong returns last week.
We continue to see foreign investors move into Egypt. What investors are probably attracted to is that Egypt in one of those economies and markets that had proven to be immune to the global crisis. The BRIC investors now probably realize there are markets that they overlooked, Egypt being one of them.
Nigeria’s recent strength is partly fuelled by investor’s increased confidence that the low valuations in the financial sector are not justified as some of the local banks have done a good job of communication and providing an understandable rationale allowing for more information for investors to work with. In addition, there will probably be a positive dynamic associated with the fact that some of the more troubled banks will be targets for takeovers by foreign financial groups, predominantly from South Africa.
Nigeria’s market had been ‘skidding across the bottom’ during most of the 2nd half of 2009 as the woes in financial sector kept negative sentiment alive. Despite some of the efforts by the media to create an issue, the market doesn’t seem to worried nor is it paying much attention to the current political handover to the vice president. As I write this, the central bank is unveiling its plans to further improve the regulatory framework to strengthen the country’s financial backbone.
The change of guard had raised questions over banking reforms launched last year by CBN governor Sanusi, who took rapid measures to stabilise the financial system, bail out undercapitalised banks with $4 billion and clean up mismanagement. The reforms sent a shockwave through Nigeria’s corporate establishment, removing some of the country’s best-known bankers and winning the governor powerful enemies in the process. But Sanusi said he expected “solid support” from the new administration. He foresaw no difficulties with pushing through legislation for an Asset Management Company which aims to soak up bad bank loans in exchange for government bonds in order to free up capital for banks to lend again. We have said it before that we are impressed by pragmatism of the way the Nigerian Central bank is handling things.
Gulf markets powered on despite weak global markets. Dubai and Qatar made a comeback from recent weakness. The news flow for the UAE has a more positive flavour to it with announcements that Dubai will start extracting oil from the new field within a year, there is not much information available about this so it is not really a big deal at the moment but it does help improve sentiment a bit and it may help pay a few bills; however, Abu Dhabi still pumps almost all of the oil in the UAE.
Furthermore the Central Bank is talking confidence by saying the UAE banks don’t need further liquidity injections. By now, you know what we think about the place; it is a great infrastructure for business located in the middle of the new world that is taking shape. In the short/medium term, it will even be a less expensive to live and work there…
These days, it is not easy for investors to come to terms with (read: believe) the possibility of economic growth in excess of 10% per annum. Qatar’s 2003-08 GDP CAGR has been 34%. In 2009 it grew by 9% and the IMF sees growth at 18.5% for 2010. Qatar is trading around half the level of its 5 year highs at current levels, further upside only seems obvious!
There is much more in-depth insight in our which can be found in our weekly updates on our website . I hope you can find the time to have a read.
Kind regards from the Silk Invest team.
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