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Africa Market and Lombard Fund News

Monthly Report November 2017

09 Nov 2017

Dear Investors,

It was an important month for the fund as significant macro events that we have been predicting for most of the year are starting to Materialize. The fund is well positioned to take advantage of mispricing’s in the African Markets.

In South Africa, The International investors continue to support the carry trade, as evidenced by the weak USD, supported by commodity prices and stable to falling bond yields. South Africa now offers the lowest hedged returns for USD and Euro based investors. This fact will get worse if the USD appreciates and US Treasury yields rise.

Thus, the funds positions, is that investors continue to ignore the regression of unemployment, productivity and consumer health. We believe that investors are overly optimistic regarding the country’s economic and political resilience. Considering these developments and the market mispricing’s, the fund has shifted away from companies whose earnings rely on consumers in favour of counters with stable diversified earnings. We are now short of financials shares as sovereign credit risks increase and rating agencies are escalating their concerns over domestic bonds and currency. We expect the yield to be better in the coming quarter.

We have observed the persistent food price pressures in Nigeria. We note that these pressures are preventing the disinflation trend from gaining more traction. However, we still expect disinflation to pick up pace in Q4. Thus, we do not expect an interest rate cut in November, but continue to look for increasing dovish signals. Given strong oil prices, we continue to favour a strong recovery in Nigeria. We have noted improvements in economic fundamentals as well as consumer optimism.

In an escalation of political turmoil, Kenya’s opposition has rejected the rerun of the election.They have sited problems with staff bias and ‘faulty’ electronic systems. Uncertainty regarding the presidential election has been weighing on investor sentiment for some time now. Unless there is a sustained increase in violence in the coming month, we think that most of the downside risks are now priced into the market.

While we continue to look for potential entry points into the countries quality Banks, for now they are still fundamentally overpriced. However, we are patient and are confident that entry opportunities will present themselves soon enough.

Looking forward to our next communication.


Derek Seely

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