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04-JAN-2016 A Financial Markets’ Compass For 2016 @TheStarKenya
ONCE upon a time, a long time ago, when I was a young boy in Mombasa,
I became convinced that time was non-linear and that with an
‘’abracadabra’’ I might be able to jump to the future and jump back to
Wayne Gretsky, the Canadian ice hockey star said: ‘’A good hockey
player plays where the puck is. A great hockey player plays where the
puck is going to be.’’
So where is the puck going to be for investors. Let’s first look at
where the puck was in 2015.
For investors who operate on the frontier, it has been a
roller-coaster ride. Frontier currencies had to face down the ‘’Obama
dollar rally’’ [Marc Chandler] which kicked off in 2013. Here in
sub-Saharan Africa, we have seen some brutal moves [Mozambique’s
metical -34% in 2015, Zambia’s kwacha -42.5%, the rand ended the year
down more than 20%]. You do not need to be an actuarial scientist to
appreciate that when you are taking these kinds of haircuts, you are
essentially ‘’benched’’. Interestingly, the best performing currency
in the world was a crypto-currency Bitcoin, but second was the Somali
shilling up 20%. The Seychelles’ rupee posted +12.5% return in 2015,
with Gambia and the Burundi franc also in positive territory. The
‘’Teflon’’ shilling was close to scratch for the year when you ac-
count for the positive carry [the interest you received from holding
the shilling]. Therefore, the first point to note is that investors
need to be very cognisant of currency risks and have a currency
overlay strategy. It is clear from the narratives attached to a
record-beating 16 profit warnings at the Nairobi Securities Exchange
where ‘’foreign exchange impairments’’ was a common lament that
companies in Nairobi need urgently to consider currency risks.
The best-performing stock Index anywhere in the world last year was
the Jamaica Stock Exchange, which served up an eye-popping +88% return
and on par with the best return of an individual stock in Nairobi
which was Kakuzi +88.9% in 2015. By contrast, the poorest performance
in SSA was Lusaka where the exchange slumped -44% [throw in the
free-falling kwacha and for each $100.00 invested in Zambia in 2015,
you would have been left with just $14.00]. The BVRM Exchange [which
comprises member countries of the West African Economic and Monetary
Union] ended 2015 up by 18.49%. The South African All Share closed out
+2.4% in 2015, but the rand tanked more than 20%. The Nairobi All
Share retreated -11.8% in 2015 and the NSE20 Index closed -21.3%. The
Agricultural counters were the bull outliers in Nairobi: Kakuzi
+88.9%, Sasini Tea and Coffee +66.34%, Williamson Tea +61.09% and
Limuru Tea +40.3%. The agriculture price moves revolve around the
share price versus net asset value discount. Share prices do not
reflect land values. This discount narrowing has a lot further to go.
Safaricom posted a rock solid return of close to 20% and portfolios
will continue to remain structurally long. I think we have entered a
period when we have to work harder for our returns, we need to be
stock pickers and pick our spots.
Given my overall view that the dollar will remain firm in 2016, it is
worth keeping an eye on SSA Eurobonds. These sold off big in last
quarter of 2015. Kenya’s 10-year Eurobond topped 9% momentarily.
I am very wary about the commodity-based Eurobonds [Zambia, Angola,
Nigeria] and believe they exhibit the characteristics that Nasim Taleb
wrote of in the Wall Street Journal: ‘’The rule is: Investments with
micro-Ponzi attributes (i.e., a need to borrow to repay) will be
Kenya’s 10-year dollar bonds above 9% were as much a no-brainer as
one-year Treasury bills at 23%.
Nassim Nicholas Taleb on the Real Financial Risks of 2016
First, worry less about the banking system. Financial institutions
today are less fragile than they were a few years ago. This isn’t
because they got better at understanding risk (they didn’t) but
because, since 2009, banks have been shedding their exposures to
extreme events. Hedge funds, which are much more adept at risk-taking,
now function as reinsurers of sorts. Because hedge-fund owners have
skin in the game, they are less prone to hiding risks than are
This isn’t to say that the financial system has healed: Monetary
policy made itself ineffective with low interest rates, which were
seen as a cure rather than a transitory painkiller. Zero interest
rates turn monetary policy into a massive weapon that has no
ammunition. There’s no evidence that “zero” interest rates are better
than, say, 2% or 3%, as the Federal Reserve may be realizing.
I worry about asset values that have swelled in response to easy
money. Low interest rates invite speculation in assets such as junk
bonds, real estate and emerging market securities. The effect of
tightening in 1994 was disproportionately felt with Italian, Mexican
and Thai securities. The rule is: Investments with micro-Ponzi
attributes (i.e., a need to borrow to repay) will be hit.
Though “another Lehman Brothers” isn’t likely to happen with banks, it
is very likely to happen with commodity firms and countries that
depend directly or indirectly on commodity prices. Dubai is more
threatened by oil prices than Islamic State. Commodity people have
been shouting, “We’ve hit bottom,” which leads me to believe that they
still have inventory to liquidate. Long-term agricultural commodity
prices might be threatened by improvement in the storage of solar
energy, which could prompt some governments to cancel ethanol programs
as a mandatory use of land for “clean” energy.
We also need to focus on risks in the physical world. Terrorism is a
problem we’re managing, but epidemics such as Ebola are patently not.
The most worrisome fact of 2015 was the reaction to the threat of
Ebola, with the media confusing a multiplicative disease with an
ordinary one and shaming people for overreacting. Cancer rates cannot
quadruple from one month to the next; epidemics can. We are clearly
unprepared to deal with such threats.
Finally, climate volatility will produce some nonlinear effects, and
these will be compounded in our interconnected world, in which
disruptions are more acute. The East Coast blackout of August 2003 was
nothing compared with what may come.
Rwandan president becomes Africa's latest to seek extended time in power
Law & Politics
"Since the system is built on personal relations and depends on the
ruler, it is in everyone's interest to support the strongman's
uninterrupted stay in office. Nothing less than the survival of the
patronized now depends on the survival of the patron," Guliyev wrote.
"The leader uses his incumbency advantage, most importantly the
control of state resources and administrative apparatus, to remove
previously adopted limitations on presidential powers. Normally, when
the second term starts or some years before the term comes to an end,
the incumbent ruler and his innermost circle start to think of ways to
avoid a succession crisis that would put the system at risk of
Currency Markets at a Glance WSJ
Euro 1.0869 The euro briefly slipped to $1.0805, its lowest since Dec. 18.
Dollar Index 98.69 The dollar index .DXY rose to 99.855, its highest
since Dec. 18 early on Monday before pulling back
Japan Yen 119.71 The dollar lowest level since Oct. 22.
Swiss Franc 0.9989
Aussie 0.7229 The Australian dollar, often used as a proxy for
China-related trades, was down 0.9 percent at $0.7218 AUD=D4 in the
wake of Monday's poor Chinese factory activity data. The Aussie lost
roughly 12 percent in 2015
India Rupee 66.345
South Korea Won 1184.36
Brazil Real 3.9588
Egypt Pound 7.8186
South Africa Rand 15.5024
Gold 6 month INO 1069.25 [Pops higher on Geopolitics]
Oil prices jumped as Saudi Arabia's execution of a prominent Shi'ite
Muslim cleric at the weekend spurred regional anger and geopolitical
tensions in the Middle East. Riyadh cut ties with Iran after
protesters stormed the Saudi embassy in Tehran.
Global oil benchmark Brent futures LCOc1 gained as much as 3.3 percent
to $38.50 per barrel, the highest in about three weeks.
Ethiopia What if they were really set free? If the government let people breathe, they might fly Economist
“He’s a compromise guy encircled by old-guard Leninist ideologues, the
Tigray boys,” says Beyene Petros,
Many of these annoyances could be removed—if only the government were
brave enough to set the economy free. “The service sector here is one
of the most restrictive in the world,” says a frustrated foreign
banker. The government’s refusal to liberalise mobile-telephone
services and banks is patently self-harming. Ethiopians have one of
the lowest rates of mobile-phone ownership in Africa (see chart); the
World Bank reckons that fewer than 4% of households have a fixed-line
telephone and barely 3% have access to broadband.
The official reason for keeping Ethio Telecom a monopoly is that the
government can pour its claimed annual $820m profit straight into the
country’s grand road-building programme. In fact, if the government
opened the airwaves to competition, as Kenya’s has, it could probably
sell franchises for at least $10 billion, and reap taxes and royalties
as well; Safaricom in Kenya is the country’s biggest taxpayer.
Moreover, Kenya’s mobile-banking service has vastly improved the
livelihood of its rural poor, whereas at least 80% of Ethiopians are
reckoned to be unbanked. For entrepreneurs like Ms Aitchison and her
partner, Habtamu Baye, local banks may suffice. But bigger outfits
desperately need the chunkier loans that only foreign banks, still
generally prevented from operating in the country, can provide. A
recent survey of African banks listed 15 Kenyan ones in the top 200,
measured by size of assets, whereas Ethiopia had only three.
Africa’s Boom Is Over Foreign Policy Foreign Policy
In recent years, economists and popular publications alike have argued
that Africa was on the threshold of an economic boom. Pointing to a
decade of high growth and increased foreign investment, this argument
held that the continent was finally on track to leave its long years
of poverty and under-development behind. Some even said that Africa
could become the next global economic powerhouse, following in the
footsteps of East Asia.
This view never went entirely unchallenged, of course. In 2013 I
argued that Africa’s growth would not be real, lasting, or beneficial
for its people until it was based on industrialization rather than
exporting raw commodities. Rather than focusing on the hype of mobile
phones and African billionaires, I urged advocates of the “Africa
Rising” argument to look at some basic development indicators: Was
manufacturing increasing as a percentage of GDP? Were the goods
African countries exported becoming more valuable — finished products
rather than raw materials? In 2011, a U.N. report looked into these
very questions, and found that most African countries are either
stagnating or moving backwards when it comes to industrialization,
quite unlike the East Asian experience.
Today, I’m sorry to say, it looks like the skeptics were right.Today,
I’m sorry to say, it looks like the skeptics were right. Oil and
commodity prices are plunging, China’s purchases are slowing, and GDP
growth rates across the continent are in steep decline. Reflecting
these trends, the IMF has cut its 2015 projection for growth in
sub-Saharan Africa from 4.5 to 3.75 percent, concluding that the
decade-long commodity cycle that had raised African export revenues
“seems to have come to an end.” With a population boom on the horizon,
experts now worry about how the continent will produce enough jobs for
Africa’s plight is reflected by developments in its two leading
economies, Nigeria and South Africa, which together account for 55
percent of the 48 sub-Saharan African nations’ GDP, and which have
both been particularly hard hit by falling mineral and oil prices.
Nigeria’s growth rate has slumped to 2.4 percent in the second
quarter, the slowest pace in at least five years, while South Africa’s
economy contracted by an annualized 1.3 percent as power shortages
curbed output. The fall in commodities prices has hit other oil
producers, too, such as Angola and Ghana, while Zambia, the
continent’s second-biggest copper producer, has suffered as copper
prices have plunged to a six-year low.
Without the commodities boom, the actual failure of Africa’s
development has now been laid bare. In November, the Economist finally
came around, noting with sudden distress that “many African countries
are de-industrializing while they are still poor, raising the worrying
prospect that they will miss out on the chance to grow rich by
shifting workers from farms to higher-paying factory jobs.” But like
most free market champions, it got it wrong when analyzing why Africa
has not been industrializing, citing the conventional lack of the
“basics” — infrastructure, skills and institutions.
In fact, Africa has had difficulty industrializing because its leaders
drank the Kool-Aid of free markets and free trade proffered by the
World Bank, the IMF, and the best university economics departments
over the last 30 years. Of particular harm has been the insistence
that African countries forswear the use of industrial policies such as
temporary trade protection, subsidized credit, preferential taxes, and
publically supported R&D. As a result, African countries have
abandoned these key tools, which they could have used to build up
their domestic manufacturing sectors.
Free market advocates told African countries that such “state
intervention” in the economy usually does more harm than good, because
governments shouldn’t be in the business of trying to “pick winners,”
and that this is best left to the market. Africans were told to simply
privatize, liberalize, deregulate, and get the so-called economic
fundamentals right.Africans were told to simply privatize, liberalize,
deregulate, and get the so-called economic fundamentals right. The
free market would take care of the rest.
But this advice neglects the actual history of how rich countries
themselves have effectively used industrial policies for 400 years,
beginning with the U.K. and Europe and ending with the “four tigers”
of East Asia and China. This inconvenient history contradicted free
market maxims and so has been largely stripped from the economics
curriculum in most universities. By now, two or three generations of
students have unlearned it.
To be fair, critics of industrial policies were correct to cite some
historical cases where the policies had badly misfired in developing
countries, particularly in Africa and Latin America in the 1960s and
70s. But these critics were often selective in their criticisms,
ignoring successful cases and neglecting to explain why they worked so
well in the United States, Europe and East Asia while failing so badly
in Africa and elsewhere. In Africa and Latin America, industrial
policies often failed because they were focused inward on small
domestic markets. Companies were often given support based on
corruption or nepotism, rather than their efficiency. On the other
hand, the successful East Asian countries focused on international
markets, and they instilled discipline in companies by cutting off
support to those which failed to improve. But this says more about how
to do industrial policy — not whether it should be done.
But a strange thing happened in the wake of the 2008 financial crash
and global economic slowdown: industrial policies have made somewhat
of a comeback. Harvard’s Dani Rodrik said, “industrial policy is
back.” In 2010 even the Economist could not ignore “the global revival
of industrial policy.” Both the U.S. and the EU have adopted new
industrial policies in recent years, and even in Canada industrial
policy “need not be taboo,” according to a public policy think tank.
The London School of Economics’ Robert Wade noted that, by the way,
industrial policy never really went away in the rich countries, even
if the U.S. refuses to acknowledge its own federal programs such as
the Defense Advanced Research Project Agency (DARPA), the National
Institutes of Health (NIH), or the National Institute of Standards and
Technology (NIST), as “industrial policy.”
Africans, too, have taken notice. Recent annual meetings of African
finance and development ministers, the African Union, and the U.N.
Economic Commission on Africa have been raising the issue in a
high-profile way. The ECA has begun promoting what it calls “smart
protectionism,” suggesting that trade policy in Africa should be
“highly selective,” with special treatment for certain sectors to
advance national development goals.
But if industrial policy is making a comeback, its not likely to be so
easy for those in Africa.But if industrial policy is making a
comeback, its not likely to be so easy for those in Africa. Many
African countries have foolishly signed on to World Trade Organization
rules that have clearly restricted their “policy space” for using such
policies. And while WTO rules still afford them some limited
provisions, this is not the case under a raft of other newer and
further-reaching regional free trade agreements and bilateral
investment treaties promoted by rich countries over the last 15 years.
And even more are on the way: Some of the biggest deals on the
immediate horizon are the Trans-Pacific Partnership (TPP), the Trade
in International Services Agreement (TiSA), and the EU’s free trade
deals with several African regions, known as Economic Partnership
So, even as we are seeing a renewed appreciation of industrial policy,
trade negotiators from the rich countries are twisting arms, cajoling
developing countries into signing new treaties and agreements that
will restrict their use of industrial policies. Many developing
country leaders either buckle under such pressure or willingly sign on
in the hope that they can export more of their primary commodities
into rich country markets in the short-term, even if this means
foregoing long-term industrialization.
Given this situation, the logical conclusion is still seldom spoken in
polite company: African leaders who are serious about pursuing
industrialization will have to back-track, renegotiate, and re-design
their previous international trade commitments, and refuse to sign new
ones that put them at a disadvantage. Offending more powerful trading
partners and big foreign investors would likely invite serious
short-term consequences, including lawsuits, threats to cut off
foreign aid and trade preferences, and possibly lower foreign
investment. But the longer-term consequences of not doing so may be
In Johannesburg, I recently asked the Chairperson of the African
Union, Nkosazana Clarice Dlamini-Zuma, how Africa could expect to
industrialize if it signs on to the European Union’s Economic
Partnership Agreements. Her reply: “We’re going to have to renegotiate
some of them.”
South Africa All Share Bloomberg
50,693.76 -111.37 -0.22%
Dollar versus Rand 6 Month Chart INO 15.5024
Egypt Pound versus The Dollar 3 Month Chart INO 7.8186
Egypt EGX30 Bloomberg
7,006.01 +25.00 +0.36%
Nigerian naira down 10 pct yr/yr, stocks fall 17 pct
The local currency closed on the interbank market at 199.50 to the
dollar on Thursday, compared with 181.50 to the dollar a year ago,
down 9.91 percent at the official window. On the parallel market, the
naira traded at 266 to the dollar, weaker by 39.26 percent from 191 to
the dollar at the close last year.
The stock market rose 3.11 percent for the day. But it ended down
17.35 percent for the year.
The central bank had pegged the naira exchange rate at 198 to the
dollar in February and scrapped a two-way interbank quote as global
oil prices fell, to conserve foreign exchange reserves.
Also in June, the central bank introduced more foreign exchange
limits, excluding about 41 items from access to foreign exchange at
the official window to further reduce pressure on available dollars.
Nigeria's forex reserves decline 15.61 pct to $29.13 bln yr/yr by Dec 29
Nigeria's foreign exchange reserves declined by 15.61 percent
year-on-year to $29.13 billion by Dec. 29, from $34.52 billion a year
ago, data from the central bank showed on Thursday.
The forex reserves of Africa's biggest economy and top crude exporter
also dropped by 2.6 percent in one month from $29.91 billion a month
Nigeria All Share Bloomberg
28,642.25 +864.42 +3.11%
Ghana Stock Exchange Composite Index Bloomberg
1,994.91 +7.02 +0.35%
Why it will pay to be a nimble investor in 2016 @BD_Africa
Real estate has proven to be a good bet with the industry rallying for
over a decade. Aly-Khan Satchu, chief executive of data firm Rich
Management, notes that the main opportunity is in land prices and not
“Real estate prices, in many respects, look fully priced. I would look
for land-based opportunities because it’s clear that devolution has
been a catalyst for economic diffusion across the country,” said Mr
“I think the stock market will certainly be higher at the end of 2016
than at the beginning of the year. I would pick up some blue-chip
banking stocks like KCB; I would remain overweight on Safaricom and I
would spice up the portfolio with some KenGen,” said Mr Satchu.
Mr Satchu’s advice is that no one should be comfortable during the
year, but rather take constant stock of their portfolio and exit when
“We are living in a volatile world and, therefore, it will pay to be
nimble. It might not be wise to be wedded to your positions or
portfolio through 2016. For example, in 2015 we were presented
momentarily with an opportunity to buy one-year Treasury bills at
around 23 per cent,” he said.
2016 opened with a Bang. The Chinese Stock Market saw circuit breakers
triggered After a 7% Fall.
The Mass Beheadings in the Kingdom of Saudi Arabia roiled the Crude Oil Markets.
Investors scurried for the safety of the Swiss Franc and the Japanese Yen.
The Nairobi All Share retreated -11.8% in 2015.
The Nairobi All Share eased 0.20 points to close at 145.50.
The Nairobi NSE20 Index retreated -21.3% over the same period.
The NSE20 Index gave up 33.42 points to close at 4007.
Turnover had a Post-holiday Feel and clocked only 168.954m.
N.S.E Equities - Agricultural
Kakuzi [which was the best performing share at the Securities Exchange
in 2015 posting a +88.9% which by the way ranked equal with the best
performing Stock Index that being the Jamaica All Share] traded 200
shares all at limit Up +9.78% and closed at 348.00.
George Williamson Tea [which was the 3rd best Performer in Nairobi in
2015 posting a +61.09% return in 2015] rallied +4.42% to close at
N.S.E Equities - Commercial & Services
Safaricom ticked +0.31% higher to close at 16.35 and traded 1.642m
shares. Safaricom was trading at 16.50 +1.23% at the Finish and could
run up towards 17.00 on what looks like a thin Sell Side dynamic.
Kenya Airways rallied +2.04% to close at 5.00 and traded 76,400 shares.
WPP-Scangroup was marked down -8.33% to close at 27.50 on just 100 shares.
N.S.E Equities - Finance & Investment
Kenya Commercial Bank which had surged a mighty +9.38% on the last
trading session of last year, conceded 1.71% to close at 43.00 and
traded 1.479m shares.
Equity Bank rallied +1.88% to close at 40.75 and traded 1.187m shares.
Standard Chartered only had Buyers and not One Seller on the Board
during the session and closed +4.1% better at 203.00.
Housing Finance firmed +2.24% to close at 22.75.
Home Afrika which had rallied +85.71% through December saw its rally
stopped in its tracks. Home Afrika issued a FY Profits Warning on the
31st-Dec and today was the first trading session after that Warning.
Home Afrika retreated just -3.84% to close at 2.50 but traded shares
as low as 2.00 -23.08% during the session.
Home Afrika FY Profits Warning issued 31-Dec-2015
N.S.E Equities - Industrial & Allied
Mumias Sugar rallied +3.12% to close at 1.65 and traded 202,200
shares. There were Buyers for 10x the Volume traded at the Finish
BOC Gases was marked down 7.84% to close at 94.00.