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Impressive numbers from Naspers

Carnegie Afrikafond rose 5.7 percent in November and all major markets developed well. Several national currencies strengthened against the dollar, further benefiting the markets.

The South African market was strong, especially after mid-month. Equities in consumer goods and finance were particularly impressive and the currency jumped. S&P downgraded South African local currency debt to “junk” at mid-month.  Moody’s maintained its negative outlook but held off any downgrade until February 2018.

Meantime, there was speculation as to whether the Vice President might actually be a stronger candidate to succeed Zuma as President of the ANC, which the market would like and could help South Africa avoid a Moody’s downgrade to “junk.” Rather than any corporate action, it is these events that have buoyed the market. The August election in Kenya was also confirmed in November and President Kenyatta sworn in for another term.

Naspers, one of Carnegie Afrikafond’s biggest holdings, released its mid-year results this month, posting a 60% increase in EPS, in USD. More interestingly, Naspers’ portfolio of e-commerce firms, such as OLX, showed positive EBITDA for the first time.  The stock’s discount to NAV has continued to increase in pace with the sustained rise of Tencent in Hong Kong, to the frustration of many investors. The hope is that positive cash flows in the e-commerce firms will narrow the gap.

Ghana Commercial Bank has achieved many of the improvements we could see five years ago, with rising interest margins and higher lending capacity. But as it now looks like the cycle may be turning and the future more uncertain, the fund has sold its holding in the company.

The upcoming ANC National Conference is vital to South Africa and market sentiment in general. The equity market has probably cashed in on its hopes for a positive outcome for the leadership election a bit early in November. If the party elections are a disappointment, there is risk of a steep drop in the market, even though several factors indicate benign development for South Africa in macroeconomic terms.

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