The performance of Silk Invest’s funds was rather impressive in the first six months of the year. Both The Silk African Lions and Arab Falcons fund achieved year-to-date returns of around 17%. The Silk Road Income Fund, our fixed income strategy, held steady rising by around 1% amid a perfect storm in the global credit space (for the Euro investor this return would be closer to 18% as most of the assets in the fund are US$ denominated). That said, the global bear market had a limited impact on our markets. Overall, growth continued in both GDP and company earnings. Local currency markets were buoyant. Kenya, for example, powered ahead by 21.47% and Nigeria by 12.73%. More information about the above is available on www.silkinvest.com
We are extremely encouraged by the resilience of our markets in the face of the global bear market. It shows that investors are somehow looking beyond the short term sovereign concerns in developed markets and more to the strong fundamentals that we continue to highlight. The poor sentiment, however, did affect both Egypt and South Africa, down 9.9% and 2.0% respectively. As we have highlighted before, these markets are constituents of global equity market indexes and have therefore have been dragged down along with the other major emerging markets. In Africa, the market that was hit most was Zimbabwe, to which we have no allocation, falling by 9.96%. In the same vein, debt woes hung over the UAE with Abu Dhabi falling by 4.53% and Dubai by 6.62%. Still, that’s why we run diversified portfolios.
Although the MENA (Middle East & North Africa) markets had some poor performers, fortunately, our diversification policy paid off and the Falcons fund benefited from its exposure to Morocco which was up by an impressive 8.09%. Returns were all over the place. In Nigeria, for example, Union Bank of Nigeria fell by 17.0% whilst Guaranty Trust bank rose by 34.3%. As always a local perspective and the resulting stock picking proved to be very important.
The volume of shares traded was mixed dependent on the market. Botswana proved to be disappointing with only 0.84% of its value traded as a percent of total market cap. The picture varied widely, with Malawi exhibiting a great deal of volume, some 18.59% of its value traded as a percent of total market cap. Overall, we remain confident that our portfolio breadth and focus is the best way to address the changing liquidity profile.
Going forward, we remain confident that the half yearly earnings season will further support valuations. GDP looks set to accelerate further. We have also noticed that there is far more interest in Frontier markets now than at the start of the review period, which should stand us in good stead when global sentiment returns.
Recently there has been increased assertiveness about the potential in Africa, it almost seems as if no one wants to be caught out in not having stated their opinion of the now obvious growth opportunity of our lifetime. Some, such as the Wealth Report’ identified around US$ 1.7 trillion worth of wealth and additional production potential in six key sectors: agriculture, water, fisheries, forestry, tourism, and human capital. This represents a combined market size today of $909 billion and $762.4bn of additional potential production. The report also estimates current proven stocks of extractable energy resources in Africa (oil, natural gas, coal, and uranium) to be worth between $13trn and 4.5trn.
In our opinion the vast potential of the consumer is often chronically ignored. There are around 1 billion people in Africa and one should look to the opportunities that will arise from the overall trend of rising GDP/capita.
McKinsey has been one of the most outspoken parties about the broader opportunities in Africa. According to projections from a new McKinsey Global Institute report, strong prospects await global companies that invest in Africa’s consumer, agricultural, natural-resource, and infrastructure sectors. A series of special reports explore the sources and staying power of the continent’s economic growth—and the rise of the African urban consumer. It essentially says Africa’s strong growth will continue at a rapid pace and investors and businesses cannot afford to ignore the continent’s potential, which goes far beyond commodities.
We continue to see the implementation of more expansion strategies by companies within the region as companies across Africa, Asia, the Middle East and even Europe continue to establish a seek ways to tap the solid growth potential that characterize the Silk Road economies. In 2009, while the world’s developed economies were in recession, we saw that most of the economies in our region of focus continued to expand, this trend continues into 2010 and more and more investors are becoming aware of this reality.
With regards to Silk Invest, we are enjoying a steady growth of assets under management and continue to expand our local presence in the markets where we invest. Apart from our establishments in Egypt, Morocco and South Africa, we have now added Kenya and will soon open our offices in the UAE and Nigeria. As mentioned before, our proposition is based on providing investors with access to these fairly unknown markets and to add value through our local insight and perspective.
Other milestones for our group in 2010 will be launch of the Silk Road Frontiers Fund, a broader listed equity strategy that will offer investors with a broader frontier market exposure across Africa, the Middle East and Central Asia. In addition, this year will see us launch our African Food Fund, a private equity strategy that invests in companies across the value chain of the food industry, excluding agriculture. We believe that there is tremendous potential to be unlocked in this sector, which is a cornerstone in the development of the rise of the African consumer. Over the past months, we have formed the right team that, thanks to their experience in the food industry and the private equity space, can successfully take on this challenge.
Al always, we look forward to keeping you updated and look forward to discussing all this in more detail with you in the near future.
With kind regards from the Silk Invest Team
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