Bellevue African Opportunities (Lux)

Fears of a US recession along with the lack of catalysts to spark growth prospects in China’s property and industrial sectors affected our commodities exposure. Oil producing companies were particularly hit in the second half of April when the Brent and WTI benchmarks lost 8%. On the other end, our structural growth stories showed some resilience last month with Morocco delivering returns in line with those in developed markets and helping the Fund outperform Emerging Market indices.

Egyptian equities were up 7.6% mom in EGP as local investors remain net buyers of the stock market, especially of names such as El Sewedy (electrical engineering and power infrastructure) or Alexandria Container (port operations) whose USD revenue streams are a tailwind in the context of a weakening EGP. Foreign inflows remain held back by the lack of progress on currency and structural reforms, which adds to the worries about Egypt’s ability to tackle its balance of payment issues. S&P Global Ratings voiced these concerns in its downgrade of Egypt’s outlook from stable to negative, stressing the urge for local authorities to deliver on their reform promises. Further, a swift implementation of the reform plan agreed under the latest IMF program would address concerns investors have around the nation’s debt.

Moving West, Morocco received the IMF board’s approval for a two-year USD 5 bn flexible credit line that will strengthen its FX buffers against external shocks. Another good news came from the pick-up in agricultural output leading headline inflation lower to 8.2% yoy last March from 10.1% yoy in February, the largest drop since early 2020. Lastly, tourists arrivals reached a new record of 2.9 million in 1Q 2023, up 17% vs. 1Q 2019, and are likely to provide a boost to domestic activity through their trickledown effect. This conducive backdrop supported another month of net inflows by local investors despite the usually low trading activity during the holy month of Ramadan. The stock Index was up 1.3% mom and the MAD gained 1.8% vs the USD.

South Africa suffered another episode of acute electricity rationing with almost half of the country’s generation capacity cut off the grid at some point adding to corporates’ struggle to operate without disruptions. On the consumers front, Capitec, a financial institution banking the mid-to-low income portion of the population, released a study showing that pressures on the purchasing power of its 20-million retail clients force the latter to arbitrate between their spending. Indeed, in the 12 months to last February, spending on pharmacy, education and home maintenance were cut by 30%, 15% and 13% respectively whereas spending on home loans, vehicle financing and fuel grew by 20%, 15% and 16%. The tough macroeconomic environment led the bank to book an impairment charge of ZAR 8.3 bn in its FY23 accounts, well above the ZAR 7.4 bn booked in FY21 which included the impact of the COVID-19 crisis. Equities gained 2.8% mom, driven by precious metal mining companies and a few other index heavyweights while the rand lost 2.7% against the USD.

Recent economic and earnings publications highlighted the negative impact the failed attempts of Naira demonetization had on business activity in Nigeria. Companies in the consumer space reported strong margin contractions in 1Q 23 and appeared as the main victims of the crisis. With an inflation still above 20% and no return to more orthodox policies in sight, prospects for Nigeria as an investment destination remain dire. The stock index fell 4.5% mom.

The Kenyan market fell 4.5% last month as a backdrop of slower GDP growth and a continued weakening of the shilling (-2.6% vs the USD mom) led foreign investors to continue exiting the market. This situation was exacerbated by growing fears related to the country’s debt sustainability, more specifically that of its USD borrowings given the country is still locked out of international markets by prohibitive interest rates.

Last month we reduced our exposure to the commodities complex to book some profits on large positions we have in the gold and copper mining space. We also reshuffled our allocation to oil producing companies to provide more space to the names we see as outperformers in case of another leg down in crude prices.