Africa Fund – Fund Manager Update

African stock indices delivered mixed returns in February. The South African TOP 40 index rose 6.3% in USD, followed by the Kenyan Nairobi SE20 index (+2.1% in USD). Meanwhile, the Egyptian Hermes index declined 0.2% in USD.

The South African economy continues to go through a very challenging period: the unemployment rate remains on the rise (32.5% in 4Q20) and activity in most sectors stagnates or contracts. In February, the government presented the new and updated budget bill. According to their latest estimates, real GDP is expected to grow 3.3% and 2.2% in 2021 and 2022, respectively. Furthermore, the fiscal deficit is foreseen below 10% of GDP in FY2021-22 and onwards. Consequently, gross public debt to GDP ratio would stabilise just under 100% of GDP. Nevertheless, this is largely priced in by investors and thus we believe that there are attractive opportunities at this juncture.

Egypt’s current account deficit remained moderate, around USD 2.8bn in 3Q20, despite the shortfall in tourism revenues. Inward FDI flows (USD 1.6bn) and portfolio flows (USD 6.7bn) covered the current account deficit and contributed to Egypt’s macro-financial stability. As a result, the central bank was in a comfortable position to keep the key deposit and lending rates stable at 8.25% and 9.25%, respectively.

In February, we added Anglo American Platinum (South Africa, mining; ESG rating “A”) to the Alquity Africa Fund, given compelling valuations. The company is the beneficiary of the global cyclical recovery as well as higher commodity prices. The best performing companies within the Fund in February were the following: Fawry (Egypt, e-payments), Bid Corp (South Africa, food service distributor) and Transaction Capital (South Africa, taxi finance and consumer credit management). In contrast, Juhayna (Egypt, dairy and juice), Maroc Telecom (Morocco) and CIRA (Egypt, private education) were the greatest detractors. In addition, we exited Juhayna during the month.