THE FUND:

Higher tax on mobile money transfers in Kenya’s new budget.

The fund rose 1.4% in June, slightly below the benchmark, MSCI EFM Africa ex South Africa Net Total Return Index which rose 2.3%. On a country level, our overweight in Nigeria was the main positive contributor relative to the benchmark, while we lost on the underweight in Kenya. On a sector level, the fund gained from underweights in Energy and Real Estate while we lost on stock picks in Financials and Consumer Discretionary. The Swedish Krona lost 1.4% adding to the SEK return in the month.

After revising our outlook on South Africa’s economy in May (when we disposed of two holdings) due to a less than optimistic view on the potential medium-term effects of Ramaphosa’s reforms, we also revisited the outlook for Nigerian consumer stocks. Here too, we concluded that the market had become too optimistic relative to the outlook for 2019 and we chose to sell Unilever Nigeria and Nigerian Breweries. Both companies struggle with weak consumption growth and increased competition which, in all likelihood, will hurt margins going forward. (All changes in SEK).

MARKET:

The African (MSCI EFM Africa xSA +2.3%) markets continued to outperform other Frontier Markets (-4.4%) in June. Increased worries and decreased risk appetite dominated global markets after a number of harsh statements from the US, EU, and China on increased trade tariffs. Africa is relatively safe from a potential slowdown in global trade, with the exception of commodity exporters. Nigeria held up well thanks to stable oil prices, while South Africa had a tougher time with a weakening Rand. The Rand has now lost over 20% since the “Ramaphoria” high in February. Most exchanges witnessed lower transaction volumes than normal due to reduced risk appetite.

Egypt (+3.5%) continued its economic reform journey and decreased subsidies on electricity and fuel, raising consumer prices by 20%-60% depending on the end-user category. Government employees received a raise at the same time to partially cover price increases. The central bank kept rates on hold in the June meeting, even though inflation has been coming down (11.4% in May vs 13.1% in April). Finally, the IMF approved the release of Egypt’s fourth USD 2bn tranche from the 12bn package agreed upon after the devaluation in November 2016.

Nigeria (+2.6%) started out in a good mood but retreated somewhat by the end of the month. After the Senate’s approval of the 2018 budget in May, president Buhari signed the same in mid-June, leaving only six months to actually implement it. Taxes on alcohol and tobacco where raised resulting in price hikes by the manufacturers. French PSA Peugeot Citroen intends to form a joint venture company with Aliko Dangote to produce cars in Nigeria. The company is expected to start within a year and produce 10,000 units within a couple of years.

Kenya (+2.8%) presented a new budget. The budget deficit is expected to decrease from 7.2% to 5.7% on tax revenues growing almost 20%, which seems fairly optimistic considering the country is already at the top of tax collection/GDP among comparable economies. Even though the market viewed the budget as too optimistic, the news of removing the rate cap on bank lending to consumers was seen as a big positive. However, this still has to be approved by the Senate where support for the rate cap is high. GDP growth in Q12018 surprised on the upside with the economy expanding at 5.7% versus 5.1% as expected and 5.3% in the preceding quarter.

DISCLAIMER:
Capital invested in a fund may either increase or decrease in value and it is not certain that you will be able to recover all of your investment. Historical return is no guarantee of future return. The Full Prospectus, KIID etc. are available on our homepage. You can also contact us to receive the documents free of charge. Please contact us if you require any further information: +46 8-5511 4570.