African stock and currency markets started the year on a very sour note. However, from mid-January the markets recovered at a steady pace and BRVM, Morocco and Kenya were the top performing markets up 10%, 9% and 6%, while Nigeria and Egypt lost 17% and 7%. After the January sell off we reduced the Fund´s cash position as the market looked oversold and our technical models turned positive.Nigeria is suffering from a multitude of illnesses which was confirmed by the Q4 GDP growth number. Low oil prices and chronic FX restrictions have slowed the economy to almost a halt. The GDP grew by a mere 2% y-o-y which is the lowest rate since 1999. While Nigeria faces difficult policy choices, there are reasons for us to remain optimistic. The economy is diversifying away from oil, and plans are in place to increase government non-oil revenue from 25% to 75%. Also the new Buhari government is pushing firmly for improved governance, and has initiated a strong anti-corruption drive.Looking at valuations across the continent, some markets may look to be on the expensive side on a P/E basis, but one must keep in mind that profits margins are at historic lows. Other metrics like EV/Sales will instead indicate that valuations are much more reasonable. We believe that much of the bad news has been priced in, and await a turnaround in the markets as corporate earnings should start improving. Sources: Bloomberg

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