THE FUND:

Tundra’s Mubashir and Mathias visited one of Egypt’s leading cheese producers, Arabian Food Industries. Cheese, dairy and juice products are generally seeing increasing volumes again after a slump last year.

The fund lost 0.8% in August, in contrast the benchmark, MSCI EFM Africa ex South Africa Net Total Return Index rose 1.4%. Total return year to date for the fund is 6.7%, slightly behind the benchmarks +7.1%. The fund’s overweights in Nigeria and the underweight in Morocco were the main reason for the underperformance relative to the benchmark. The overweight in Egypt was the main positive contributor, although not enough to compensate for the decline in Nigeria. On a sector level, the fund lost from overweights in Financials and underweight in Telecom, while we gained on stock selections in Consumer Discretionary and Consumer Staples. The Swedish Krona depreciated 3.9% in August adding to the SEK return in the month. There were no major changes to the portfolio during the month. (All changes in SEK).

 
THE MARKET:

The African (MSCI EFM Africa xSA +1.4%) markets underperformed compared to other frontier markets (-3.2%) in August. Egypt was the best performing market (+7.2%) after showing several strong half-year results. Namibia and South Africa (-7.4% and -6.3% respectively) were the worst performing markets in the wake of the turbulence in Argentina and Turkey.

The main focus in August was the release of the half-year results. Approximately 80% of the fund’s holdings released their reports and we have reasons to be pleased. Sales grew almost 20% on average (adjust for extreme values) and EPS grew at over 30%. No single sector stands out. Growth, in general, was good in our Egyptian and Nigerian financials, as well as in Egyptian healthcare and consumer companies. Although reports were good, the reactions on the stock exchanges were less favourable, partly due to increased risk aversion fermented by the situation in Turkey and Argentina. Nigerian financials had a particularly hard time and most of them are now trading -5 to -15% YTD, after being +20-25% in January. Currently valuations are back to the level seen in early 2017 (when the currency market was essentially closed) and several of them are trading below 20% discount to the 5-year average.

The main interest rate in Egypt (+7,2% in August) was kept at 17.75% and inflation rose 13.5% in July YoY, down from 14.4% in June.

Nigeria (-3%) finished out August with its attention focused on the Central Bank’s demand that MTN, a South African telecom, and four local banks repay USD 8.1bn that, allegedly, had been illegally transferred out of Nigeria. The four banks (our fund owns one – Stanbic) were also fined approximately USD 14m. The accusations first surfaced a few years ago when MTN was fined for not disconnecting unregistered pre-paid SIMs ahead of publicly announced deadline. An investigation by the Nigerian Senate failed to find anything wrong with the repatriations; nonetheless MTN was hit by an initial fine of USD 5bn before reaching a settlement of USD 1bn, for their negligence with regard to pre-paid SIMs. MTN fell over 20% after the news hit. All the companies involved reject any wrongdoing but once again MTN is involved in something with an opaque outcome. The complexity increases in light of MTN’s plan to list the Nigerian unit on the Nigerian Stock Exchange before year-end. This will be hard to implement while the threat from the Central Bank of Nigeria looms overhead.

Kenya’s senate (+0.6%) took the market by surprise when it decided to remove the rate cap floor, but leave the ceiling intact, meaning banks can freely adjust rates on deposits but loans cannot be priced more than 4% points over the central bank rate. Analysts say this will only impact a small share of deposits since most money sits in non-interest bearing accounts. The fund has no investments in Kenya, and this does not change our stance.

The Ghana (+1.2%) listing of MTN Ghana concluded with a third of the USD 750m offering subscribed by the market. Not as good as they hoped for but still a significant deal for a stock market which trades USD 100,000 per day on average.

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.