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African stock markets did relatively well in April, despite the turmoil in the rest of the world. Egypt and South Africa were among the better performers, with Egypt gaining 9 percent and South Africa 4 percent.

In South Africa, it was mainly internationally focused companies that rose and improved the performance, while banks and consumer companies fell back slightly after having outperformed the overall market in the first quarter. Consumer-related companies in Egypt developed particularly well and the fund’s holding in Juhayna rose 25 percent after its results showed that the company’s cost strategy has succeeded and volumes are expanding.

Nigerian companies have reported earnings for the first quarter and profits are rising overall. Converted to dollars, however, profits are still falling compared with the first quarter of 2017, which indicates that the economy has not yet recovered from the oil price shock of 2015/16. In Egypt, bank lending in dollars has been replaced by lending in local currency, so even though lending looks lower income seems set to improve.

The fund’s holding in Credit Agricole Egypt increased its dividend significantly and released results that exceeded market expectations. Lucara also announced positive news in April, with two major diamond deposits expected to be auctioned later this year.

This is welcome news and demonstrates that the area of the mine now being re-worked can still offer major finds. South African consumer confidence data was released in April and came in at levels not seen since the 1990s. This is certainly a result of all the political improvements in South Africa, but also a somewhat exaggerated correction.

There will likely be a slowdown to more normalised levels, which would still be incredibly positive for the rest of the year. In addition to the “Ramaphoria” sweeping South Africa, inflation, especially on the food side, has fallen sharply this year and incomes have risen in line with improved macroeconomic conditions since last autumn, which has almost certainly also contributed to improved consumer confidence.

Valuations of locally focused companies reflect these positive prospects in the short term, but few have yet wanted to price in improved conditions further ahead, so there is reason to believe that valuations could be supported by better profits going forward.

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