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Wednesday 19th of April 2017
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Normal Board - The Whole shebang
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Macro Thoughts |
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18-APR-2017 ::Geopolitics Flexes its Muscles @Thestarkenya Law & Politics |
Geopolitics has always been a factor in the markets thinking but last
week it became the pre-eminent factor. First off President Trump
thrust the US into the Syrian maelstrom by lobbing 59 Tomahawks at an
airfield in Syria. Next up the US dropped a MOAB [GBU-43/B Massive
Ordnance Air Blast is a large-yield thermobaric bomb] in Afghanistan.
This was just an hors d'oeuvre and we did learn that the Tomahawks
were lobbed at Syria whilst President Trump and President Xi Jinping
were enjoying some rather good chocolate cake at Mar-a-Lago. The
piece de resistance in a geopolitical context last week was the news
that the US' policy of ''strategic patience'' with North Korea was
over and an Armada [“We are sending an armada, very powerful. We have
submarines, very powerful, far more powerful than the aircraft
carrier.” President Trump] is now parked off the Korean Peninsula.
Machiavelli argued that sometimes it is "a very wise thing to simulate
madness" (Discourses on Livy). The madman theory was a feature of
Richard Nixon's foreign policy. Other than both having tiny little
hands and both possessing nuclear weapons, we are dealing with two
principals whose very raison d'être appears to be escalation.
“If the U.S. provokes recklessly, the revolutionary forces will take
an annihilating strike,” Choe Ryong Hae, a senior regime official,
said. North Korea is ready for a nuclear or full-scale war if the U.S.
wants it, he added. Saddam Hussein who was prone to a similar
hyperbole did not possess a nuclear weapon. This is the difference.
Furthermore, it is impossible to model how ''Little'' Kim is going to
react to what he must perceive as an existential threat to him and his
Regime.
I have not even mentioned the French Election, which of course is
another big potential geopolitical curve ball.
The purest Geopolitical proxy in the markets is Gold. As Ben Bernanke
once said People hold gold "As protection against what we call tail
risks: really, really bad outcomes."
Gold closed the week at a 6 month high of $1,285.00 and has the
potential to go ''nuclear'' Silver which behaves like Gold on
steroids closed at a 1 Year High. The ''Trump Reflation Trade'' is
being unwound. The ''Trump Reflation Trade'' was based on a the theory
that US interest rates were going higher. We saw a near enough 40
basis points rally in US ten Year yields last week.
The open question is how does this affect Emerging Markets, which had
been in a sweet spot in 2017 [with some exceptions of course, mostly
politically correlated, South Africa and Turkey, come to mind].
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No More New Frontiers Creates Index Problem for Hottest Stocks Frontier Markets |
Alexander the Great is said to have wept when he saw there were no
more lands to conquer. For investors in a shrinking pool of frontier
markets -- places like Morocco and Vietnam -- the feeling might be
familiar.
As many of these nations graduate to “emerging-market” status, a
closely-watched index of frontier equities is in danger of losing some
of its largest and most liquid members including Pakistan, Argentina
and Nigeria. With few obvious candidates to replace them, analysts at
Citigroup Inc. have been sounding the alarm on what they’ve dubbed the
“index problem” besetting a genre whose returns beat more-developed
peers over the past five years.
“You have to ask what is left in the Frontier Index,” said Hertta
Alava, who manages a frontier fund for FIM Asset Management Ltd. in
Helsinki. “If Pakistan and Argentina leave the index, it won’t be a
very attractive composition any more. I think more and more funds will
choose not to track the index.”
Index provider MSCI Inc. is slated to re-categorize Pakistan next
month, taking one of the larger and more liquid frontier markets out
of the benchmark and pushing it into its emerging market equivalent.
Argentina and Nigeria are also being considered for reclassification.
Pakistan made up 10 percent of the overall index, while Argentina
claimed 15 percent and Nigeria 7 percent at the end of last year.
A spokesperson for MSCI declined to comment.
The disappearance of markets that have become bread and butter to
investors who follow frontier-designated mandates is a recurring
problem. A decade ago, United Arab Emirates and Qatar accounted for 28
percent of the frontier basket. Then they were shifted into the
emerging-market bucket in 2013, delivering a hit to the Frontier
Market Index’s size from which it has never recovered.
Still, many frontier market investors already venture outside the
benchmark -- placing money in promising areas such as Saudi Arabia,
which wants to open its markets to more foreign capital. Many frontier
investors still own Emirati and Qatari stocks some three years after
the countries exited the index, suggesting they may hold onto
Pakistani shares too.
“I’ve seen liquidity come and go,” said Andrew Brudenell, a fund
manager at Ashmore Group Plc who helps oversees the firm’s $700
million in frontier-market equities, one of his focuses for the past
decade. “Things get very liquid and very enthusiastic and then they
dry up. You need to understand how to construct your portfolio based
on what’s realistic liquidity in the market.”
Portfolio construction is fine for active funds. But at a time when
passive investment is all the rage, entry or exit from an index can
decide billions of dollars worth of inflows and outflows, said Citi’s
Andrew Howell.
“In an increasingly index-dominated investing world, indices do
matter,” he said. “Difficulties with the Frontier Market Index could
impede significant AUM growth into passive funds linked to this index,
putting frontier markets at a continued disadvantage to emerging
markets from a liquidity standpoint.”
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Swamp-Dwellers Farm by Night as South Sudan Ravaged by Famine Africa |
By day, Mary Nyarac scours swamps for fish and edible water lilies.
When darkness falls and South Sudan’s militias retreat to their bases,
she and hundreds of others fleeing a three-year civil war slip onto
dry land and tend crops to stave off famine.
Prowling hyenas pose a threat during Nyarac’s night-time harvests, but
they worry her less than the armed men who can appear in daytime, the
20-year-old said as she sat beneath neem trees in the northern county
of Leer, one of two areas in South Sudan where the United Nations in
February made the world’s first declaration of famine since 2011. She
and other residents are facing a catastrophe that’s being echoed by
looming mass food shortages in Somalia, Yemen and northern Nigeria.
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Zimbabwe's cash cows are signal of desperation Africa |
They don’t call it a cash cow for nothing. In Zimbabwe, new
legislation would make it easier for small- and medium-scale farmers
to use “moveable assets”, such as cows, goats and sheep, as well as
farm machinery, vehicles and accounts receivable, as collateral for
loans. Under the law, introduced by President Robert Mugabe’s ruling
Zanu-PF party, financial institutions would be obliged to accept such
items as security for credit.
There is nothing wrong with the idea per se. In other parts of Africa,
including Ghana, Kenya and Nigeria, livestock is frequently used as
collateral. That can be a way of enabling people normally excluded
from the banking sector to access loans without paying exorbitant
interest rates. Theoretically, it could work in Zimbabwe too,
notwithstanding banks’ concerns over the vulnerability of livestock to
rapid depreciation — for which read death in a country prone to
drought.
Yet the true intent of trying to spirit cash from cows has its roots
not in a sensible attempt to uplift the poor, but rather in a
desperate one to keep the struggling economy afloat. Zimbabwe is
slowly being squeezed by a credit crunch largely of its own making.
Since 2009, it has been a dollarised economy. The only problem is it
doesn’t have nearly enough dollars. So acute is the shortage that the
government regularly settles its debts by printing treasury bills. The
public is starved of cash. Even the practice of giving money at
weddings has yielded to the new reality: couples have taken to
bringing a card reader to their nuptials so that guests can swipe them
a wedding gift instead.
The origins of the cash crunch lie in the hyperinflation that peaked
in 2008 when people needed wheelbarrows of money to buy simple
household items. That, in turn, stemmed from years of economic
mismanagement; Zimbabwe went from being the region’s breadbasket to
near-ruin through badly mishandled land reform.
Dollarisation stabilised things. But it also strangled what remained
of the economy. Zimbabwe’s central bank has no control over money
supply, which is wholly dependent on how many dollars flow in — and
out — of the country. The desperate shortage of cash has obliged it to
try various wheezes to spirit credit out of thin air, including the
recent introduction of “bond notes” as a dubious form of exchange.
Harare has also tried to repair relations with multilateral bodies by
clearing $1.8bn in arrears, a deal that could unlock fresh lending.
Yet that process appears to have stalled, partly because of
Washington’s reluctance to throw the government a lifeline.
At bottom, Zimbabwe’s crisis is political rather than technical. Mr
Mugabe, 93 and in his 37th year of power, is refusing to leave office.
Harare is consumed by intrigue as factions jockey ahead of the power
struggle that will ensue once he finally dies. Economically, little
seems possible under the current regime. The international community
could strike a deal on arrears, which might give Zimbabwe the reserves
it needs to transition back to a local currency. But given their
considerable leverage, foreign lenders should not do so without a
guarantee that next year’s elections will be free, fair and
internationally monitored.
That is the last thing Mr Mugabe appears ready to accept. It seems he
would prefer to take Zimbabwe’s economy down rather than relinquish
power. In the meantime, like the story of “Jack and the Beanstalk”,
his government can only resort to a clever bovine exchange. For anyone
who believes this will be enough to save the economy, President Mugabe
has some magic beans to sell you.
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Zambia Seeks IMF Deal of as Much as $1.6 Billion This Month Africa |
Zambia, Africa’s second-largest copper producer, plans to reach an aid
deal for as much as $1.6 billion with the International Monetary Fund
by the end of April, Finance Minister Felix Mutati said. Bond yields
fell.
“At the moment we know that we can get up to $1.6 billion -- if you
ask me, I’d go for the maximum,” he said in an interview Monday in the
capital, Lusaka. “Hopefully the program can be presented to the board
sometime end of June, beginning of July.”
The country has been talking about getting IMF aid since 2014, but
resisted after two presidential elections since then made the required
reforms politically unattractive. The country’s fiscal deficit has
risen, foreign-exchange reserves have declined, and economic growth is
near the lowest since 1998, spurring the need for a program with the
fund.
Zambia’s debt has also been climbing, putting pressure on the
Treasury. External debt has increased to $6.9 billion, said Mutati,
who President Edgar Lungu appointed finance minister in September.
That’s more than double the level in 2012. Total government debt is
about $10 billion, which is “pretty high,” he said.
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Eaagads outsources management of farms to regional company Kenyan Economy |
The board of listed coffee grower Eaagads Limited has decided to
sub-contract operations on its 203-hectare farm to a regional
management company in a move that could result in lower operational
costs.
In a communication sent out to shareholders, the 70-year old
Ruiru-based firm said it intended to hand over its business to the
Coffee Management Services Limited(CMS), a firm associated with global
coffee roaster Dormans with a presence in Kenya, Rwanda, Uganda and
Tanzania.
The NSE-listed company, which is currently trading at the bourse at
Sh22 per share, said it is awaiting approval from the Capital Markets
Authority before finalising the deal.
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N.S.E Today |
The big news internationally was the decision by Theresa May to call a
snap General Election in the United Kingdom for June 8th.
The Conservative Party has a 21 point lead in the Polls and the Prime
Minister is seeking to parlay that lead into a big majority.
I think the PM will win this by a mile like Shergar won the Epsom Derby.
Sterling found an Off-Ramp yesterday and surged [its still got a lot
further to go] and the shorts got burned. I have been bullish Sterling
for a while now and the Naysayers are toast now.
Sterling jumped to 132.72 and my Target is 140+.
Here at home It was reported that Kenya GDP expanded at 5.8% through 2016.
The IMF is forecasting a 5.3% GDP expansion this year with all of us
would take with both hands given the drought and it being an election
year.
The Nairobi All Share firmed 0.31 points to close at 133.81.
The NSE20 rallied +27.89 points to close at 3129.76.
Equity Turnover was brisk at 718.551m.
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N.S.E Equities - Agricultural |
Sasini Tea and Coffee rallied +6.14% to close at 26.00 and traded
10,100 shares. Sasini Tea is +35.41% through 2017.
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N.S.E Equities - Commercial & Services |
Safaricom was the most actively traded share at the Exchange and
firmed +0.26% to close at 19.20 with 12.731m shares worth 244.435m
changing hands. Safaricom is +19.62% since closing at a 2017 low in
early March.
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N.S.E Equities - Finance & Investment |
StanBic Bank saw easy volume action and closed unchanged at 58.00 and
traded 2.975m shares [0.75% of its issued shares] worth 172.592m.
StanBic trades on a PE of 5.188 and looks to ave room to the upside
once this supply is cleared.
Equity Bank closed unchanged at 32.75 and traded 1.055m shares.
Barclays Bank rallied +3.26% to close at 7.90 and traded 645,100
shares. The Barclays Bank GOLD ETF could not ave been better timed.
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N.S.E Equities - Industrial & Allied |
EABL firmed +0.418% to close at 240.00 and traded 396,900 shares. The
Financial Times carried a story headlined ''Multinational brewers look
to tap Africa’s $13bn beer market'' and this will further juice the
same price recovery.
KenolKobil closed unchanged at 12.60 on good volume action of 5.154m
shares worth 64.952m. KenolKobil trades on a Trailing PE of 7.683 and
looks inexpensive.
BAT traded 37,000 shares all at 850.00 +0.12%.
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