THE FUND:

Tundra on tour: In October we had the chance to meet with a number of our holdings in Egypt and Nigeria as well as some new prospects. Egypt Kuwait Holding (top picture) is one of our most exciting Egyptian holdings, and Nigerian Guaranty Bank (bottom picture) is the best performing African bank in the last 20 years.

The fund lost 1.3% in October, slightly worse than the benchmark, MSCI EFM Africa ex South Africa Net Total Return Index which decreased 1%. Total return year-to-date for the fund is -0.4%, slightly ahead of the benchmark (-1.2%).

As in September the fund’s overweights in Nigeria (33% of assets) and underweights in Kenya (0%) and Morocco (0%) made the most positive contributions relative to the return (approximately 2%-points), while our Egyptian (53%) holdings had a difficult month costing nearly 2%-points.

On a sector level, the fund gained from its overweights in Financials and stock selection in Consumer Staples, while the largest negative contributions relative the benchmark came from overweights in Consumer Discretionary and Industrials. The Swedish Krona depreciated 3.2% in October adding to the SEK return in the month. During October we decreased our positions in Obour Land, a dairy company, and El Sewedy, industrial. (all changes in SEK)

THE MARKET:

The African markets (MSCI EFM Africa xSA -1%) performed in line with other frontier markets (-0.9%) in October.

Zimbabwe was the best performing market (+44.9%). The worst performing markets were South Africa (-8%) and BRVM (a joint exchange for e.g. Senegal, Ivory Coast and Benin) (-7.8%). The strong performance in Zimbabwe (no holdings in the fund) was unfortunately for all the wrong reasons. The national economy has been shattered and there is an acute shortage of cash making it virtually impossible to repatriate money. People are piling into the stock exchange in an attempt to try and restore the value of their savings. The fall in South Africa (no holdings in the fund) can partly be explained by falling commodity prices and partly by the general weakness in emerging markets (MSCI EM -5.7%). Replacing Nhlanhla Nene, the finance minister, for the second time this year and the sixth time since 2014 did not improve the situation. Undisclosed relations to the Gupta family were once again the reason for Nene’s resignation. He was replaced by Tito Mboweni.

Egypt (-2.9% in October) was again part of the worst performing group in Africa in October. We visited Egypt and Nigeria and met with several of our holdings as well as a few potentials. Egypt confirmed our optimistic view, but also surprised us on the upside on several occasions. We view the correction in Egypt as an effect of increased risk aversion and the general correction globally. While the Egyptian economy has a double deficit reforms are underway, they have already completed some and are in the process of implementing more, which will decrease the budget deficit. The trade deficit will also see a huge improvement in 2019 as the Zohr gas field will start producing at full capacity. The currency, post the 2016 devaluation, is one of the cheapest in emerging/frontier markets and we see the current correction as a good opportunity to get into high quality companies with strong growth prospects at attractive valuations. Having said that, we realise that being cheap is not enough at the moment, but when risk appetite increases again Egypt should benefit.

Nigeria (+2.5%) recovered in October and several of our banks did well. During out visit to Lagos in October we sat in on many interesting discussions centred on the upcoming election in February 2019. By all accounts, it will be a tight race between the incumbent president Buhari and his opponent Atiku. Buhari garners continued strong support from a large and primarily poorer part of the country but is also seen as not having achieved much during his 4-year tenure. Atiku, as a businessman, is viewed as more market friendly and reform positive, but also as much more corrupt. The MTN debacle was another point of discussion. Nobody could really explain the chain of events, with all companies involved claiming no wrongdoing; and hoping that the central bank will have to forfeit all claims. Outside of that the banks we met were happy to see credit quality improve among customers, but they are not expecting any major loan growth before the election. In the meantime, they are making good money putting deposits in T-bills while waiting for loan demand to grow. Retail customer acquisition strategy is geared towards online growth instead of bank branches, increasing customer numbers rapidly and at much lower costs. The outlook for consumer companies still looks challenging as purchasing power remains constrained. We continue to avoid investments outside banks in Nigeria due to unattractive valuations.

Kenya (-2.6%) was down over 4% but recovered towards the end of the month. No major news impacted performance instead a view that Kenya due to its large double deficits is quite vulnerable among emerging and frontier markets gained traction.

 
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.