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Monday 04th of January 2016 |
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04-JAN-2016 A Financial Markets’ Compass For 2016 @TheStarKenya Africa |
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 the present.
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 hit’’.
Kenya’s 10-year dollar bonds above 9% were as much a no-brainer as one-year Treasury bills at 23%.
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Nassim Nicholas Taleb on the Real Financial Risks of 2016 Africa |
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 bankers.
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.
Home Thoughts
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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 collapse."
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Currency Markets at a Glance WSJ World Currencies |
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 Pound 1.4720 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
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Gold 6 month INO 1069.25 [Pops higher on Geopolitics] Commodities |
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.
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Ethiopia What if they were really set free? If the government let people breathe, they might fly Economist Africa |
“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.
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Africa’s Boom Is Over Foreign Policy Foreign Policy Africa |
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 its people.
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 Agreements.
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 far worse.
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.”
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South Africa All Share Bloomberg Africa |
50,693.76 -111.37 -0.22%
Dollar versus Rand 6 Month Chart INO 15.5024 http://quotes.ino.com/charting/index.html?s=FOREX_USDZAR&v=d6&t=c&a=50&w=1
Egypt Pound versus The Dollar 3 Month Chart INO 7.8186 http://quotes.ino.com/charting/index.html?s=FOREX_USDEGP&v=d3&t=c&a=50&w=1
Egypt EGX30 Bloomberg http://www.bloomberg.com/quote/CASE:IND
7,006.01 +25.00 +0.36%
Nigerian naira down 10 pct yr/yr, stocks fall 17 pct http://af.reuters.com/article/investingNews/idAFKBN0UF1MF20160101?sp=true
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 http://af.reuters.com/article/investingNews/idAFKBN0UE0FU20151231
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 earlier.
Nigeria All Share Bloomberg http://www.bloomberg.com/quote/NGSEINDX:IND
28,642.25 +864.42 +3.11%
Ghana Stock Exchange Composite Index Bloomberg http://www.bloomberg.com/quote/GGSECI:IND
1,994.91 +7.02 +0.35%
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Why it will pay to be a nimble investor in 2016 @BD_Africa Kenyan Economy |
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 development.
“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 Satchu.
“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 need arises.
“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.
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N.S.E Today |
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.
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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 401.00.
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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.
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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 http://www.rich.co.ke/media/docs/Home%20Afrika%20-Profit%20Warning%20-%20FY%202015.pdf
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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 Line.
BOC Gases was marked down 7.84% to close at 94.00.
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