FMG (EU) Africa Fund gained +0.4% in the 1st Quarter 2017
African markets were all over the place at the start of the year, but closed the quarter mostly flat. Kenya was down a massive 13% at one point, and Egypt up 19% but both closed the quarter flat. We added another investment to the fund, which is a Pan African equity fund with a solid track record with the aim to lower the risk profile of the fund and create alpha. Nigeria is Africa’s largest economy and the economic data reported lately has been mainly positive. Headline PMI rose to 53.0 in March which was the highest reading in 15 months, indicating robust improvement in the private sector, but the outlook still remains uncertain due to current FX policies. The IMF is forecasting that the country will recover from its recession of 2016 and will show a slightly positive GDP growth for 2017. The IMF forecast that this will be driven by improved fiscal policy implementation, improving oil output, higher oil prices and improving productivity in the real economy. There are obviously risks to this scenario but the economic hardship of the country has created opportunities in the stock market. As an example the market cap of the entire banking sector in Nigeria is around $7bn, which can be compared to the market cap of South Africa´s largest bank, Standard Bank, at $16bn. Most Nigerian banks are trading below book value and with a PE of 3-4x. However, we expect foreign investors to largely remain on the sidelines, until there is real evidence that the central bank will create a functioning FX market.