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Africa Market and Lombard Fund News

Monthly Report June 2017

14 Jul 2017

Dear Investors

Summer vacations are knocking at the door and the feeling was already present on African markets with the vast majority closing the month with optimism


South Africa

As widely expected, the South African Reserve Bank kept its key rate unchanged at 7%. In light of the slowing economy and inflation, the reserve bank has been forced to maintain its hawkish stance for fear of triggering a capital outflow and harm the local currency. This came as ratings downgrades could still affect the rand and harm an improving inflation outlook. As the South African economy slows following the ratings downgrades, the political uncertainty, this time led by irrational comments from the public protectors office, has led to further warnings about further downgrades.  We see this as very worrisome for South African domestic equities and maintained the short bias in financial stocks for the month.  Further, with currney risk towards a weaker ZAR, the long bias was centred around dollar earnings and dual listed equities.

Only days after the South African government imposed stricter rules on mining operations wrt to black ownership, AngloGold Ashanti announced it is considering cutting 8,500 jobs which represent around 30% of its workforce in an attempt to restructure its South African mines.  The new rules will be earnings dilutive for shareholders who will again be expected to give ownerships stakes to black south Africans.  The fund was well aware that this was a real possibility and had liquidated all positions in mines with South African exposure prior to the announcement.  Only BHP, who has no SA mines left in its portfolio remained an investment.



Shell lifted force majeure on exports of Nigeria’s Forcados crude oil bringing all of Nigeria oil exports fully online for the first time in 16 months. Forcados exports 200,000-240,000 barrels per day and its resumption will bring Nigeria to around the 1.8 million barrels per day and improve FOREX earnings for the state. This corresponds to the level the government wanted to achieve before joining OPEC output cuts. We view this as very positive for the Nigerian economy as the extra dollar revenue is stabilising reserves and starting to allow business transactions to take place one again


This month saw additional moves to reduce government spending by reducing state subsidies and cut the budget deficit.  Fuel prices have been increased by Egypt’s Ministry of Petroleum and stamp duty will be applied to securities bought or sold. Although this is long term very positive, we saw some weakness creep into the banking stocks at month end


The funds decision to avoid African mining companies appeared to be rewarded this month as the Tanzanian government submitted three bills to parliament that would allow it to force mining and energy companies to renegotiate their contracts. 


The World Bank expects Zambia’s economy to grow by 4.1% in 2017 and by close to 5% by 2019. However, the lender cautioned that stricter spending controls were needed to ease the country’s large debt burden.

Looking forward to our next communication. 

Derek Seely

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