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Africa Market and Lombard Fund News

Monthly Report- April 2018

15 May 2018


Dear Investors,

After the portfolio changes last month, this month was about consolidating the positions with the view to further expansion of the funds objective.


South Africa

With the euphoria over the election of a new government lessen, reality about the challenges returned to the South African market. South Africa’s central bank warned that the country’s difficulties to rehabilitate state-owned companies could be a threat to its financial stability. The bank warned about the risk of further credit downgrades. SARB cited governance issues, increasing contingent liabilities and poor liquidity as risks to government finances. Solving the Eskom situation has been flagged by government officials in the past as key to avoid further deterioration. The fund remains alert to these risks, however the underweight position by global funds into South African companies remains. We expect that these funds continue to grow exposure and that this demand will underpin stocks throughout this quarter.

On a positive note, the IMF now expects GDP to grow 1.5% for 2018 and 1.7% for 2019, compared to previous forecasts of 0.9% and 1.6% respectively. In its outlook, IMF states that business confidence is likely to remain upbeat following change in leadership but economic reforms are key to growth achievement. In the meantime, latest official data showed that the country’s inflation achieved its lowest level in years thanks to the end of the severe drought helped push down food prices. These numbers enhance our current stance of overweight South African Rand earning companies.


Egypt targets an increase in revenues from taxes imposed on tobacco by 7 bn Egyptian pounds ($402 mn) in the 2018-19 draft budget. As part of economic reforms related to a $12 bn IMF programme, the country has been increasing taxes and cutting subsidies to reduce budget deficit. This month we witnessed an extremely strong performance from the Egyptian markets as foreign investors continued to grow exposure. We maintain our positive exposure to the country.




The Kenyan Finance Minister expects the economy to rebound to 5.8% growth this year after the election uncertainty and the drought affected last year. The economy should benefit from increased investment in key areas like manufacturing, farming, housing and healthcare. Over the medium term the growth is projected to increase by more than 7%. Inflation which decreased to about 4% is supportive of an improving economic environment. I believe that our patience on waiting for excessive risks to abate in the Kenyan economy has been rewarded. The demanding valuations that these bank stocks have had are moderating with the moderation in risk. I hope to introduce banking stocks to the portfolio in May. Further, these factors will remain supportive for our existing Kenyan equity positions.

Looking forward to our next communication and an even better 2018.


Constant Capital

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