Global Equity Markets
The performance of Agricultural commodities was mixed. White Sugar declined by 7.39%, Palm Oil by 5.69%, and wheat futures expiring in May 2011 by 6.24%. Arabica coffee futures prices rose by 9.91%. Cocoa futures prices in the London Futures Exchange advanced by 10%. There is no end in sight in the wrangling between Cote d’Ivoire presidential candidates; the political gridlock if affecting the supply of cocoa. This week, the sitting president: Laurent Gbagbo announced that the cocoa and coffee industries will be nationalized.
Tea prices at the Mombasa auction rose by 4.98%. The volumes traded have climbed with the return of Egyptian packers to the market. Despite the good volumes and prices at the Mombasa auction, the tea sector stocks in the Nairobi Stock Exchange have been hit hard by fears that crop yields will be low because of drought.
The Ghana Cedi strengthened slightly against the US Dollar rising by 0.16%. The Cedi dipped by 0.29% against the Nigerian Naira.
The company trades at an extremely low PE (3), but suffers from very low liquidity: only 300 shares were traded on March 4, 2011. The company finances its purchases using expensive short term bank loans and overdrafts. The management has announced that they intend to either issue a bond or do a rights issue to retire this costly debt. If they take this step the profitability of the company will be boosted significantly.
In the four weeks to March 4, 2011 markets in the developed world held steady while funds continued to flow from the smaller emerging markets particularly from the Middle East. USA’s S&P 500 rose by 0.78%, Japan’s Nikkei by 1.42% while the UK FTSE 100 posted a slight decline: 0.12%.North African and Middle East stock markets have been hit hard by the ongoing political crisis in the region, with most of the region’s market indices posting double digit losses in the past two months.
The large emerging markets performed strongly in the past month. China’s Shanghai SSE composite climbed 5.12%, India’s Sensex 2.66% and Brazil’s Bovespa 4.20%. The advance was largely a correction of the previous month’s drop.
Emerging Africa Equity Markets
Africa’s markets have been adversely affected by the current sell off of Emerging Market stocks and flow of funds to developed markets. Nigeria’s NGSE All Share Index dropped by 5.25% in the four weeks to March 4, 2011. The reversal was greatest in the banking sector which was the main source of the huge advance in the market in the first month of the year. Nigerian’s presidential elections are due in April 2011; we expect the market to be stock market index to be volatile in the next few months.
Ghana’s stock market was flat in the month, dipping by 0.50%. The resilience of the Ghana market in comparison with other African markets could be as a result of positive sentiment driven by rosy economic growth projections. The current high price of commodities that Ghana produces: crude, cocoa, palm oil and gold should have a positive medium term impact on Ghana’s economy.
Kenya’s 20 Share index posted a 5.17% drop in the four weeks to March 4, 2011. This was despite solid results reported by several companies especially banks. Kenya’s stock market is being dragged down by the ongoing drought in the country which is expected to be prolonged. There are also fears that rising inflation fueled by the huge spike in crude oil prices will dampen economic growth this year. Many investors are adopting a wait and see attitude regarding the banking sector which posted superb results: it will be interesting to observe whether the good results in 2010 will be replicated in the first quarter of 2011.
Commodities
Brent crude oil prices rose by 16.94% as a result of the turmoil in North Africa and in the Middle East. There are fears that the unrest might spread to Saudi Arabia, the world largest exporter. Saudi’s Tawadul index has fallen over 20% in the year to date and is among the worst performers in the region despite the country’s strong economic fundamentals.Gold advanced by 5.93%, to top the $1,400 per 100 ounce price it last touched in December 2010. High grade copper futures price declined by 2.17%.
The performance of Agricultural commodities was mixed. White Sugar declined by 7.39%, Palm Oil by 5.69%, and wheat futures expiring in May 2011 by 6.24%. Arabica coffee futures prices rose by 9.91%. Cocoa futures prices in the London Futures Exchange advanced by 10%. There is no end in sight in the wrangling between Cote d’Ivoire presidential candidates; the political gridlock if affecting the supply of cocoa. This week, the sitting president: Laurent Gbagbo announced that the cocoa and coffee industries will be nationalized.
Tea prices at the Mombasa auction rose by 4.98%. The volumes traded have climbed with the return of Egyptian packers to the market. Despite the good volumes and prices at the Mombasa auction, the tea sector stocks in the Nairobi Stock Exchange have been hit hard by fears that crop yields will be low because of drought.
Currencies
The Kenyan Shilling declined by 2.30% against the US Dollar and is now trading at close to its all time low of 83.35. The declines against the British Pound and Euro were more pronounced, at 3.21% and 4.66% respectively. The fall against the South African rand was particularly steep: 7.33%. The Kenya shilling depreciation has been attributed to reduced Dollar inflows from traditional tea buyers in the Middle East and the climbing crude oil prices which are pushing up the import bill.
The Ghana Cedi strengthened slightly against the US Dollar rising by 0.16%. The Cedi dipped by 0.29% against the Nigerian Naira.
Equity Markets Largest Movers
Accra, Ghana: GSE
Gainers
PZ Cussons +15.00%
Produce Buying Company +11.11%
Total +10.50%
Losers
Golden Star Resources -23.08%
Ghana Commercial Bank -14.18%
CAL Bank -12.82%
Produce Buying Company
PBC main business is the internal marketing of cocoa in Ghana. The company should post improved margins this year as due to the prevailing high cocoa prices. The company’s management said in a press briefing in February that they expect to purchase 13% more volumes this year owing to strong harvests from late 2010 which are expected to run to mid 2011.
The company trades at an extremely low PE (3), but suffers from very low liquidity: only 300 shares were traded on March 4, 2011. The company finances its purchases using expensive short term bank loans and overdrafts. The management has announced that they intend to either issue a bond or do a rights issue to retire this costly debt. If they take this step the profitability of the company will be boosted significantly.
Golden Star Resources
Golden Star Resources reported a loss of USD 12.30 Million in the fourth quarter of 2010. The American Exchange listed shares fell by 25% on the news and on analysts’ downgrades.
Nairobi, Kenya: NSE
Gainers
East African Cables +21.32%
Pan Africa +10%
Barclays Bank +9.68%
Losers
Access Kenya -30.74%
Car and General -20.80%
Scangroup -19.20%
Barclays Bank
Barclays Bank reported a 51% jump in profits for the year. The pretax profits were Kshs 13 Billion including a 3.5 gain from the sale of its custody business to Standard Chartered. The banking sector as a whole reported good results with Equity Bank reporting a 69% increase in profits and KCB a 71% increase.
The strong performance by banks has not translated into a huge leap in the share prices of the banking sector. 2010 was a particularly good year for the sector and there is concern that the good performance cannot be replicated in 2011.
Drought, political uncertainly and the ongoing crisis in Middle East seems to have put a damper on all Kenyan stocks. If the drought leads to economic slowdown it is likely that banks will take a big hit from non performing loans.
Drought, political uncertainly and the ongoing crisis in Middle East seems to have put a damper on all Kenyan stocks. If the drought leads to economic slowdown it is likely that banks will take a big hit from non performing loans.
Even taking into account the current market concerns, Barclay’s share is cheap, with a PE ratio of just 8.72. The dividend yield on this stock is a healthy 8.01%; the highest of all listed NSE stocks. The 1 for 4 split that was announced on 22 February will enhance liquidity further. The shareholder register will close on the 15th of March for both the split and the dividend.
Access Kenya
Access Kenya’s share price has now dropped below its IPO level of Kshs 10 per share. Access Kenya has suffered from declining profitability over the last two years and recently issued a profit warning. The company faces intense competition from well heeled competitors the strongest of whom is Safaricom. Safaricom is investing massively in the data market now that the company is facing margin pressures in its traditional voice market. While the PE of the company is now just 11, there are several cheaper counters with more promising growth prospects.
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It is better to open your eyes and say you do not understand than to shut your eyes and say you do not believe. Igbo Proverb
