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Satchu's Rich Wrap-Up
Wednesday 03rd of July 2019

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Can the #G20 summit end trade wars and political infighting? #G20OsakaSummit @AJEnglish @AJInsideStory

Leaders of the world's wealthiest economies are in Japan to discuss
the biggest challenges to global free trade.
The group of 20 summit, or G20, has been held every year for the past
two decades.
This year's summit in Osaka is supposed to unite leaders around issues
such as free trade and climate change.
But political tensions and the trade war between the United States and
China are creating divisions.
Can the participants find consensus? And how relevant is this meeting
for the rest of the world?

Presenter: Divya Gopalan
Felicitas Weber - project lead at the Business and Human Rights
Resource Centre  @FelWeber
John Kirton - director of the G20 Research Group, an independent
network of global scholars providing analysis on the G20 @jjkirton
Aly-Khan Satchu - economist and CEO of Rich Management

Macro Thoughts

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17-JUN-2019 :: Now another Big Happening is the Crude Oil Market. Here Two powerful Gale Force Winds are at work.

The IEA has now twice downshifted Demand and what is clear is we are
facing significant demand destruction and it is this Penny dropping
which took down Oil more than 20% from its 2019 Highs and we are now
at 5 month lows. However, what is not clear yet is the degree of
Supply destruction we are facing. One third of all oil traded by sea,
which amounts to 20% of oil traded worldwide, passes through the
Strait of Hormuz. Insurance rates deman- ded for Tankers operating in
the area are up to 20 times higher [@ Chigrl]. @ejmalrai reports Ali
Akbar Velayati saying that “if Iran can’t export oil through the
Persian Gulf, no-one in the Middle East will be able do this” and “ex-
pects further attacks in the futu- re, given the US decision to stop
the flow of oil by all means at all costs. Thus, oil will stop being
delivered to the world if Iran can’t export its two million barrels
per day”. The overwhelming confidence that Iran is displaying, both in
rhetoric and action, is astounding says Stratfor.

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"Don't forget the real business of war is buying and selling"

“Don’t forget the real business of war is buying and selling. The
murdering and violence are self-policing, and can be entrusted to
non-professionals. The mass nature of wartime death is useful in many
ways. It serves as spectacle, as diversion from the real movements of
the War. It provides raw material to be recorded into History, so that
children may be taught History as sequences of violence, battle after
battle, and be more prepared for the adult world. Best of all, mass
death’s a stimulous to just ordinary folks, little fellows, to try
grab a piece of that Pie while they’re still here to gobble it up. The
true war is a celebration of markets,” Thomas Pynchon said.

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Hong Kong is savouring a quite momentous Geopolitical Victory and seriously countertrend in point of fact.

The Supreme and ‘’Paramount Leader’’ made his first [that I can
recall] volte-face. The Carrie Lam Administration has withdrawn the
Extradition Law indefinitely. Make no mistake the Decider in this
matter is Xi who has moved with despatch. Essentially, he understood
Hong Kong could not be ‘’Xinjiang-ed’’ Furthermore, being a
‘’Paramount Leader’’ is a double-edged sword.

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White House's Navarro says China trade deal will take time: CNBC via @Reuters
Law & Politics

“We’re headed in a very good direction,” Navarro said in an interview
with CNBC. “It’s complicated, as the president said, correctly, this
will take time and we want to get it right. So let’s get it right.”
“All we’ve done basically is to allow the sale of chips to Huawei and
these are lower tech items which do not impact national security
whatever,” Navarro said.
“Selling chips to Huawei, a small amount of chips - less than $1
billion a year - in the short run is small in the scheme of things.”

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01-JUL-2019 :: "You Bad Bad Boy Vlad. Don't do it again, you hear."' or words to that effect.
Law & Politics

Trump has now found a way of deflecting the prima facie charge of
Russian interference in the 2016 Election and it is the equivalent of
''You Bad Bad Boy Vlad. Don't do it again, you hear.'' or words to that effect.
And I thought I noticed Vladimir was quite impressed with the role
play and the ''political'' subtlety around the Trump side step.

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"Let's wait and Xi" said Citibank.
Law & Politics

''A lot of people are drawing a lot of unwarranted conclusions about
the course of the US-China relationship based on a meeting, which
probably didn’t resolve very much, and a press conference with a guy
who is liable to say anything and completely reverse it a day later''
said @prchovanec

Xi understands that this negotiation is much more than a ''Reality
TV'' show 90 minute engagement and a Time-out will give some respite
from what is now becoming a sharp slow down with asymmetric cliff edge
downside risks . Therefore, this is a Christmas truce (German:
Weihnachtsfrieden; French: Trêve de Noël was a series of widespread
but unofficial ceasefires along the Western Front of World War I
around Christmas 1914]. However, this is 1914 and not 1918.

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In the Spirit of "Reality TV" which of course sinks or swims on ratings, President Trump detoured into the DMZ
Law & Politics

AND became the first sitting US president to cross into North Korea
after meeting Mr Kim at the demilitarised zone. The Ratings were off
the charts. Of course, the Folks in Tehran must be calculating that
they need to speed up Iranium enrichment and get a proper deterrent
and then they too will be holding hands with President Trump. Trump
will parlay these DMZ Photo Ops into a major Foreign Policy success.

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Powering the Belt and Road
Law & Politics

The MERICS BRI Database has allowed us to identify projects related to
renewable energy, fossil fuel and nuclear power projects; grid
investments and upgrades; as well as key domestic and cross-border
transmission-line projects (see map below). This has produced four
insights about BRI-related projects in energy generation and
distribution. Firstly, investment in power plants and grids dominates
China’s spending on BRI-related infrastructure. Secondly, China is
encouraging its energy companies to seek contracts abroad without
necessarily prioritizing any sector - Beijing is neither leading a
“green” revolution nor a fossil-fuel revival, but rather playing both
sides. Thirdly, China’s energy projects are geographically diversified
- Latin America is in the lead in terms of volume of completed
investments (mostly into renewables and energy distribution), while
Southeast Asia boasts the highest number of projects (mostly involving
coal). Fourthly, China’s initial focus on energy projects creates the
preconditions for the next phase of the BRI: industrial buildup and
new China-centered supply chains.

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Currency Markets at a Glance WSJ
World Currencies

Euro 1.1288
Dollar Index 96.727
Japan Yen 107.62
Swiss Franc 0.9849
Pound 1.2589
Aussie 0.6997
India Rupee 68.8015
South Korea Won 1170.64
Brazil Real 3.846
Egypt Pound 16.644
South Africa Rand 14.1099

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After the poor factory data, tin, which is extensively used in the
manufacturing industry, has been “probably the weakest link” among
falling base metal prices, Richard Fu, head of Asia-Pacific region for
Amalgamated Metal Trading, said by email.

Emerging Markets

Frontier Markets

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African eurobond 2nd quarter 2019 update. $103bn / 21 country space growing rapidly over past 3 years. @LinkedIn @gregorylbsmith

The now $103bn African sovereign eurobond space has been growing
rapidly over the past three years. 21 African countries have issued
sovereign eurobonds in US$ and Euros, with maturities of up to
30-years. Kenya and Egypt issued sovereign bonds in 2Q19, and South
Africa and Kenya both repaid eurobonds. The narrative has shifted from
only issuance to now include a growing track-record of eurobond
repayment. Here is an update from the second quarter of 2019.
Second quarter 2019 issuance
$4.4bn was issued in 2Q19 (in US$ and euro), compared to $7.6bn in
1Q19. This takes issuance from the Africa sovereign eurobond space to
$11.9bn in 2019 to date.
This makes 2019 already the third largest year of African eurobond
issuance. 2018 saw a record breaking $28.4bn of issuance, but it does
not look like Africa will match that amount this year.
Kenya issued two eurobonds on 15 May. The $900mn 2027s (paid pack in
three equal annual parts, starting 2025). And $1.2bn 2032s. The
proceeds were earmarked for a combination of liquidity management
(paying back other debt) and for budget financing. Hence, it cannot
all be counted as ‘new debt’. Kenya used 36% ($750mn) of the proceeds
to pay back one of their debut eurobonds (issued in 2014) that came
due on 24 June. Ghana came with a similar narrative in the first
quarter. This active debt management is crucial for reducing repayment
Egypt issued two euro denominated bonds on 4 April. The EUR 750mn
2025s and EUR 1,250mn 2031s. This follows the $4bn, that Egypt issued
in the first quarter (in USD).
South Africa have not yet been to the eurobond market in 2019 but
repaid a $2bn eurobond that came due on 27 May.
Second quarter 2019 performance
African eurobonds performed well in 1Q19 across the board, bouncing
back from a tough 2018 as global market sentiment recovered. 2Q19
performance was also positive for the asset class.
In 2Q19 average yields fell 48 basis points compared to a drop of 93
in 1Q19. The represents a half percentage point drop in yields (the
cost of borrowing).
The 98 African eurobonds ended June with an average yield of 6.3%,
compared to 6.7% at the end of March, and 7.4% at the end of 2018.
Yields on the US Treasury 10-year fell 40bpts to 2.0% in 2Q19,
highlighting only a small reduction in the spread between the US paper
and African eurobonds.
The strongest performance in 2Q19 was achieved by Mozambique, Tunisia
and Republic of Congo eurobonds. Rwanda, Namibia, and Tanzania all saw
substantial gains.
Only Zambia saw it performance deteriorate further in 2Q19, as prices
for its three eurobonds saw a large decline in April and May.
Second quarter 2019 snippets
China’s approach to Africa debt has been changing. It has published
its own debt sustainability framework to try and monitor whether Belt
and Road borrowers go into debt trouble
(it was published on the Chinese finance ministry website in April).
China provided Zambia with $22mn of debt cancellation and a grant of
$30mn. This is a positive, but only a small one (Zambia’s external
debt is around $11bn, with around one third owed to China).
Similarly, Ivory Coast got $34mn in debt relief and a $31mn grant in
June. And Ethiopia got some debt relief in April. It all helps, but it
is not a game changer.
Seychelles had its only credit rating upgraded by Fitch in June from
BB- to BB. They cited good performance with their IMF policy
coordination programme (that’s been in place since end-2017). Solid
economic growth and repeat budget surpluses have helped get debt down
from 192% GDP in 2008 to 58% GDP in 2018. Over the same period GDP per
capita increased by 48% from $11,123 to $16,472.
Zambia’s credit rating was downgraded by Fitch in June from B- to CCC
and by Moody’s in May. S&P kept Zambia on-hold at B- in February but
shifted the outlook to negative.

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Even Passports Are Scarce as Zimbabwe Runs Out of Everything

Zimbabweans have been struggling with shortages of cash, fuel and
electricity for months. Now, even passports are almost impossible to
Tendai Mpofu applied for new passports for his sons more than two
months ago. Their current ones expire this month, just when they’re
due to travel to South Africa for a school sports event. It may be a
long wait before they get new documents.
With inflation at almost 100% and an acute lack of foreign currency,
Zimbabwe is facing its worst economic crisis in more than a decade.
While President Emmerson Mnangagwa has said that the passport company
is refusing to print anything until the government has cleared its
debts, others say Zimbabwe is simply too broke to import the ink and
paper needed.
An official at the passport office said the situation is “dire” and
passports were only being issued for emergencies. Identity cards are
also hard to come by - metal cards were replaced with plastic ones but
now plastic is in short supply.

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South Africa All Share Bloomberg +10.16% YTD

Dollar versus Rand 6 Month Chart INO 14.11


Egypt Pound versus The Dollar 3 Month Chart INO 16.644


Egypt EGX30 Bloomberg +8.44% YTD


Nigeria All Share Bloomberg -6.48% YTD


Ghana Stock Exchange Composite Index Bloomberg -5.58% YTD


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Kenya Shilling versus The Dollar Live ForexPros 102.95
Kenyan Economy

Nairobi All Share Bloomberg +6.91% YTD


Nairobi ^NSE20 Bloomberg -6.38% YTD


Every Listed Share can be interrogated here


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by Aly Khan Satchu (www.rich.co.ke)
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July 2019

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