August 21, 2015

Navigating the Market: Think Long Term

Investor panic over global growth has clearly spread to the US markets, with the S&P 500 Index down 4% for the week and falling below 2000 today. We continue to hear reports of challenged economies across emerging markets: China’s slowdown, the yuan’s devaluation, disappointment with India’s Modi, and the fallout to other Asian economies including Singapore, Hong Kong, and South Korea top the news. And, while investors in US equities had been able to stomach much of the angst related to Greece and China, this week even those investors finally gave in.

So what about Africa? The news has been mixed there too. On the more positive side, South Africa’s reported inflation rate of 5% was in-line with expectations, and some investors think that the Rand is poised for a rebound. On the other hand, the currency devaluations in China and Kazakhstan has prompted investors to expect a devaluation of the Nigerian Naira, despite government reassurances.

We appreciate what we are seeing in Kenya: think long-term despite short-term challenges. Clearly, like most countries in this economic environment, Kenya has had its share of challenges. This week the country’s Fluorspar Co. cut its annual production of its steelmaking ingredient forecast by 19% due to weak demand stemming from a tough global economy along with increased competition from new entrants. Most of Kenya’s output of fluorspar is to India and Europe. Despite these near-term challenges, however, Kenya continues to invest behind its long-term infrastructure, with the country’s Ports Authority planning to borrow $328 million to finance the expansion of the biggest harbor on the southeast coast.

In fact, this is the thinking we encourage investors to sustain during these challenging times in the markets: think long-term. Valuations have clearly come down in still to be developed regions like Africa. As examples, year-to-date, Nigeria’s NGSEINDX, Kenya’s KNSMIDX, and South Africa’s JALSH are down 11%, down 11%, and up 0.44% respectively. Yet, the IMF still expects growth in emerging and developing economies to grow 4.7% in 2016, with improved conditions in Russia, some countries in the Middle East, and North Africa. This projected growth rate for emerging and developing economies is in comparison to the 2.4% growth rate projected for advanced economies in 2016.

Moreover, we remind investors that our approach involves an active management investment strategy, where we seek to invest in the most attractive regions and sector themes available. As such, we underweight regions that face significant challenges, such as Nigeria. And we seek to invest in sector themes that fit in with a long-term growth outlook, such as infrastructure investments and a rising middle class consumer.

The views expressed are opinions subject to change and are not investment advice

Nile Capital Management
We Know Africa: From Cairo to Cape Town
For more information please call 646-367-2820

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