The market

MSCI EFM Africa ex South Africa Net Total Return Index rose 1.1%, better than frontier markets in general (MSCI Frontier Markets xGCC Net -3.4 %). Nigeria rose 5.1%, Egypt fell 0.5%, Ghana rose 10.1% and Kenya rose 2.6%. Best performing African markets in July were Ghana followed by Nigeria. Tanzania was the worst performer (-4.1%). The Swedish krona strengthened by 4% vs USD weighing on returns when converted to SEK. (All changes in SEK)

There was no clear trend in the markets in July and trading was restrained ahead of half year results due to be released starting at the end of the month. Egypt had a strong start to the month but came off after some disappointing results from steel manufacturer Ezz Steel and several consumer companies. The Central Bank of Egypt surprised the market with a 2%-points rate hike to 18.75%. The market was expecting no change and this decision makes a cut this fall less likely, even though the central bank repeated that the hike was a temporary measure. Inflation increased to 32% (from 30.6% in June) partly affected by the subsidy cuts in June. The EGP continues to be one of the cheapest currencies and the rate hike attracted even more inflows. As a result, the foreign exchange reserves hit USD 36bn, twice the amount in July 2016. The Nigerian market started the month without any clear direction as the turnover in the new FX window looked to be tapering off, but with turnover increasing towards the end of the month and as of August 1st MSCI decided to use the NAFEX for their index calculations (which we started doing already in May). The change led to a 13% drop in the MSCI Nigeria index on that day and a 3.9% drop in the fund’s benchmark (which will show in the August update). The decision is an important stamp of approval from MSCI that the new currency system is working and should increase interest in the Nigerian market going forward.

The Kenyan news flow increasingly focused on the presidential election on August 8th.

The market in Ghana got a boost from a surprisingly big rate cut by the central bank when they lowered the rate by 1.5%-points (vs the -1%-point expected) to 21%. The decision was supported by a continued fall in inflation hitting 12.1% in June.

The Fund

The fund fell 1.3%. It underperformed the benchmark which rose 1.1%. On a country level, our overweight in Nigeria and Ghana added the most positive contributions relative to the benchmark, while our overweight in Egypt was the biggest negative contributor. On a sector level, we gained from overweight and stock picking in Financials and Health Care and an underweight in Telecom, while our off benchmark picks in Consumer Staples and Materials performed worse than their benchmark counterparts.

During July, we reduced our exposure to Nigerian banks and sold out of Dangote Cement and Presco after strong performances. We also took profits in the Egyptian snack producer Edita and instead increased our holding in the leading juice producer Juhayna Foods. (All changes in SEK).