Market Update: Politics and the Market Cycle

“Know what you own, and know why you own it.” – Peter Lynch

Sub-Saharan Africa Equities in general have not been exhibiting positive vibes so far and we have to say their performance has been sub-par compared to other frontier markets in Latin America and Asia.

In Africa Namibia, Egypt and Tanzania have shown resilience, the Namibian Exchange NSX Overall Index is up by over 35% (USD), Egypt’s EGX 30 is up by over 20% (USD) and the Tanzanian All Share Index is up by 9.39% (USD) year to date. Namibia has 39 listed companies and 4 Exchange Traded Funds.

In Kenya the Nairobi All Share Index closed the week at 143.86 points down -1.21% year to date. (1 year Chart Below).

The NSE 20 Index, a composite of Kenyan Blue Chip companies closed at 3,449.44 points on Friday. We have been closely monitoring this index which has been on a negative trend since early 2015. If you closely look at the 10 year chart below we have factored in Political Elections and from the chart a few observations can be made.

• •After Kenya’s 2007 elections which went sour, the NSE 20 Index dropped massively by well over 50%.
• •From the negative effects of the 2007 elections as we approached the 2012 elections, fear was exhibited and the market tumbled by over 30% a year prior to the elections but recovered after a successful and peaceful general elections were held.
• •Currently we are a year prior to the 2017 general elections and the market is exhibiting a similar scenario to the pre-2012 general elections. The way we see it, is that the downward trend may persist and will recover after or during the election period. From a long term investment point of view excellent opportunities can be sought during such market cycles.

Looking at individual counters on the NSE 20 Index, only four counters have emerged in the green since the year began as shown in the table below:

Kenol Kobil and Safaricom share prices are up by over 20 percent year-to-date.

Kenol Kobil announced its intention to construct a Castrol lubricants plant in Mombasa in 2017. The project will be undertaken through a joint venture between BP Southern Africa and Kenol Kobil. The blending plant will cut its import duty costs from 25% to 10%. (see share price chart below)

Safaricom the largest company in Kenya by Market Cap surprised the markets in July declaring a special dividend of KES 27 Billion, it closed the week with an average price of Ksh 20/share. The counter has been receiving high foreign net inflows week on week.

Foreign Investor participation was strong in July and was the highest recorded in 2016 accounting for almost 80% participation similar to the participation recorded between July and October 2015 as shown in the chart below:

Fixed Income Market

Select Eurobond Prices

The Republic of Congo made a payment on a defaulted $478 million coupon payment that was due at the end of June which was extended for a month to the end of July. The country gave an excuse of the late payment due to an administrative ‘error.’ S&P ratings agency downgraded the country to SD (Selective default) from B-.

Sources: (African Markets, Bloomberg, Kenyan Wall Street, Standard Investment Bank, NSE, African Development Bank, Financial Times)