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Africa Market and Lombard Fund News

Monthly Report Sept 2017

10 Oct 2017

Dear Investors

It’s been a quiet month in the African Market this month, with very few drivers to influence investors.  While we view periods like this as positive, as it shows that the African Markets are maturing and economies stabilising, but it does not make for very exciting report writing.

There were two major focuses in South Africa this month. 

The first half of the month started a bit rocky proving that corruption in South Africa is still active as KPMG fired top executive members of its South African branch after an internal investigation found that work done for the Guptas improperly influenced government contracts. 

The second half of the month was dominated by indications that the US would push through fiscal reforms which attracted investors back to the US markets, supporting the dollar. The rand took a big hit trading at a four-and-a-half-month low. 

Even with the weaker rand weakness in some base commodity prices and poor confidence levels on the JSE due to further political uncertainty around the government's attempts to find money to recapitalise state-owned enterprises resulted in a pause in commodity stocks.  The fund has used this as an opportunity to lock in the profits that were made in these investments, with a view to reinvesting when the opportunity presents itself.  In other news, a Moody’s representative stated this week that the agency feels comfortable with South Africa’s Baa3 with a negative outlook rating.  The fund continues to operate as it did last month with a neutral position in retailers, and no exposure to banking.  

Meanwhile in Egypt, the Central Bank of Egypt's decided to keep interest rates unchanged this month, maintaining overnight deposit and  lending rates. Since the MPC's last meeting annual headline inflation fell to 31.9% from 33%. Inflation mostly came from an upward adjustment of regulated prices due to higher electricity tariff. According to the CBE, real GDP growth averaged 4.6% during the second half of 2016/17, growing at the fastest pace since 2009/10. 

The fund maintained its positions in Egyptian stocks, keeping a focus on taking advantage of the growing disposable income and defensive nature of tobacco.  

In Kenya, if the re-run presidential election goes “relatively” smoothly, Fitch rating agency said it could change just the negative outlook on Kenya's sovereign debt. The new election opposing current president against opposition leader Odinga has been scheduled for 17th October. Fitch currently rates Kenya as B+ with a negative outlook...

The fund continues to use the election volatility as an opportunity to grow equity exposure in this region and will continue to use the volatility that will occur over the next months to opportunistically increase exposure. 

Looking forward to our next communication. 

Derek Seely

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