THE FUND
The Fund fell -19.9% in March, better than the benchmark index MSCI EFM Africa ex South Africa Net Total Return Index, which fell -22.3%. So far this year, the Fund has fallen by -22.0%, slightly worse than the benchmark index, which has fallen -21.6%. At a country level, underweights in Morocco (5% of Fund assets) and underweights in Mauritius (3%) contributed most positively relative the benchmark. The Fund’s overweights in Egypt (41% of fund assets) and overweights in Ghana (10%) contributed most negatively. At the sector level, underweights in Communication Services along with underweights in Materials contributed most positively, while the overweights in Consumer Discretionary and overweights in Health Care contributed most negatively relative the benchmark index. The Swedish krona depreciated 3% versus the USD in March, increasing the SEK return of the Fund (all changes in SEK).
It is often said that stock markets are driven by greed and fear, and in March fear totally eliminated any signs of greed on the entire planet. The global reaction to the COVID-19-pandemic was to sell anything anywhere like the world was coming to an end, as the number of infected and deceased increased all over the world. Curfews, lockdowns, and isolation suddenly became the new norm with severe economic effects as a result. It is still too early to say how this end, both in terms of the virus and for the economy, but we know that both will get worse before they get better. The development in Africa is even harder to predict, and while the virus started spreading later there than in rest of the world and the fact that the infrastructure is poorer, many countries have imposed restrictions at an earlier stage to limit the spreading of the virus. Recent experience from the Ebola outbreak (which was far more deadly) should also help in dealing with the current outbreak. But again, it will get worse before it gets any better. And even if it remains very difficult to predict the final economic impact in Africa, there is one important point from a stock market perspective. All markets around the globe sold off heavily in March, but while S&P has seen 5 years of very good performance, most markets in the frontier space have seen quite poor returns and are trading at multi-year lows. See the monthly update for Tundra Sustainable Frontier for an in-depth discussion on the subject.
MARKET
African equity markets in March (MSCI EFM Africa xSA Net TR -22.3%) fell sharply and performed worse than other Frontier markets (MSCI FMxGCC Net TR), which fell 19.2% during the month. Zimbabwe was the best African stock market rising 9.7% followed by Malawi, rising 3.5%. Namibia was the worst African market declining 27.7% while Mauritius was the second-worst performer, falling 26.1%. (all changes in SEK).
Egypt has (Hermes Index -21.4% in March, -23.9% year to date) responded forcefully to stop the spread of the COVID-19 virus with curfews, closing of schools, mosques, etc. They have also introduced several different and targeted support packages to the economy including cutting natural gas prices for the industry and a whopping EGP 20bn (USD 1.3bn) stock purchase plan. The central bank also cut the interest rates by 3%-points at an extra meeting on March 16th.
Nigeria (Nigeria Stock Exchange Main Index -19.5% in March, -17.9% year to date), at the same time being severely hit by the fall in oil prices due to the disagreement between Saudi Arabia/OPEC and Russia, with the latter refusing to cut production, has also taken measures to counter the negative impacts on the economy from the Corona outbreak. The financial capital Lagos, as well as the neighboring state of Ogun and the capital Abuja has been locked down to limit further spreading. The central bank has also done a small devaluation of the currency (although they prefer to call it an “adjustment”) and harmonizing the official rate (effectively not available to anyone) of NGN 305/USD to closer to the prevailing market rate of NGN 365 to the USD, and have since let the rate slide further closer to the 390-level. Without important USD inflows from oil sales, CBN will have a harder time meeting USD outflows from imports or financial flows and there have been signs of lower liquidity in the FX market. CBN also kept the interest rate unchanged at the latest meeting not to add to the pressure of the currency.
Morocco (MASI Free Float All Shares Index -22.8% in March, -26.5% year to date) also lowered rates, -0.25% to 2% in March along with closing restaurants and cafés, etc. and then went on to a lockdown.
The Kenyan (Nairobi All Share Index -11.8% in March, -17.5% year to date) economy is also hit by the current global turmoil, adding to the locust outbreak in parts of East Africa threatening the crops to some extent. The central bank cut interest rates by 1%-point to 7.25% and the government quickly launched support packages including tax relief, economic stimulus with VAT refunds and extra money to the poor, etc., along with social measures to curb the spread of the virus.
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.
