Larry Seruma’s Interview with Chuck Jaffe on the Money Life Show

Please listen to Larry’s interview with Chuck Jaffe on the Money Life Show. Larry provides his thoughts on investing in Africa.

A few key points include:

• The best way to think about Africa is as a frontier market with the benefit of emerging markets exposure underneath the surface. Frontier markets tend to be less liquid given less coverage by Wall Street – about 55 countries on the continent qualify as frontier markets. However, based on market capitalization, 2 countries on the continent (South Africa and Egypt) qualify as emerging markets.

• Active managers like Nile Capital Management choose their investments in Africa on a country by country basis.

• In comparing Africa and BRIC, we believe Africa has the advantage in terms of both valuation and growth potential. Less coverage of African markets means lower multiples and bigger discounts to intrinsic value. Anticipated population growth in Africa over the next twenty years suggests market expansion potential, while acceleration in urbanization suggests greater cost efficiencies and thus greater profitability.

• When making investments outside the United States, investors should think about performance ex-currency. A strong dollar negatively impacts overall performance, even as fund managers like Nile Capital Management have historically demonstrated solid stock picking and portfolio management.

• In terms of allocating to Africa, we believe that clients should consider that Africa today represents 4% of global GDP and is expected to grow to about 12% of global GDP over the next twenty years. Also, we believe that an active management approach to investing, such as that used by Nile Capital Management, can potentially drive wealth for investors over the long term.

For more information, please listen to Larry’s interview.

http://www.moneylifeshow.com/SaveFiles1/Upload_Files/151208%20-%20Big%20Interview%20with%20Larry%20Seruma.mp3

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

     

Oil Continues to Spiral

Over the past week, we continue to see volatility in the markets ahead of next week’s announcement by Janet Yellen regarding Fed policy. Aside from the uncertainty in Fed rates, oil prices and a strong dollar continue to impact the markets.

Oil prices faced another unraveling as the likelihood of rising OPEC production going forward became a focus in the markets, along with strength in the US dollar, solid US production, and a continuing global supply glut.

Figure 1. The Decline in Brent Oil and Crude Oil Prices

Source: FactSet

Last Friday, OPEC decided to continue pumping oil at its current output level, which in November was 31.695 million barrels per day, the largest monthly level in three years. Yet, OPEC cut its forecast for non-OPEC production in 2016, citing the impact of low oil prices and falling investments in oil. The logic is that low prices may force private oil companies out of business, thus helping OPEC. However, the International Energy Agency has indicated that the world’s stockpile of oil is at a record 3 billion barrels and continues to grow. Crude oil inventories are at levels not seen in at least 80 years.

The citing of this glut is a change in past months where declining oil prices was more a result of a strengthening US dollar. As the dollar strengthens, other currencies clearly decline in value such that holders of those other currencies tend to slow down their purchase of these commodities, causing further declines. Essentially, commodities and currencies spiral downward.

We think that investors should look upon the decline as an attractive entry point to invest in actively managed funds such as those offered here at Nile Capital Management. We expect that, as 2016 progresses and a front runner in the US elections becomes clear, the markets should rebound. Hence, we believe investors should consider taking a long-term approach just as we do and allocate to their positions.

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

Bloomberg: Four reasons Africa will weather China's slowdown

Bloomberg - The Forum on China-Africa Cooperation in Johannesburg on Dec. 4-5 will mark the growing importance of relations between the Middle Kingdom and the continent. The pomp of the event can’t disguise the fact that the slowdown in the Chinese economy is having repercussions in Sub-Saharan Africa, most notably in Zambia due to its reliance on China’s demand for copper. However, slower growth in China will be more of a speed bump for the region than a change in direction, and there are at least four reasons not to overstate the negative impact. Click through the following link to read the full article: Four reasons Africa will weather China’s slowdown

Nile Capital Management

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

Bloomberg: Where's the Growth? Africa

Bloomberg - Here's a nice way to stump your companions: Ask them what part of the world has had the fastest economic growth over the last 10 years. And whose governments and countries have enjoyed the greatest investment returns among the world's emerging markets.

Did anybody say sub-Saharan Africa? Buy her a drink!

During the past 10 years, the gross domestic product of the 11 largest sub-Saharan countries increased 51 percent, more than twice the world's 23 percent and almost four times the 13 percent expansion of the U.S., the largest economy, according to data compiled by Bloomberg. Click through the following link to read the full article: Where's the Growth? Africa

WINNING THE GDP RACE

SOURCE: BLOOMBERG

Nile Capital Management

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

AP - Mega beer merger bets on the rise of African drinkers

LONDON (AP) — Charles Kwara and his friends sit around an earthenware pot, sipping a frothy gray drink through long straws as laughter fills the Charismatic Club in the slums of Kampala, Uganda's capital.

The men joke that the crude brew of fermented millet known as "malwa" makes them feel both high and as if they'd just eaten. It's also what they can afford: they can drink malwa all evening for the cost of a single bottle of branded beer.

"This is cheap," says Kwara, a 47-year-old marketing manager who heads a drinking club. While they'd like bottled beer, home brew is the only option if they want a full night out. "Drinking is also a way of socializing for us," Kwara says.

The Charismatic Club, and brewers like it from Uganda to Ghana to South Africa, have something the makers of Budweiser want: potential customers. Click through the following link to read the full article: Mega beer merger bets on the rise of African drinkers

"Everyone is looking for the next big golden egg: It comes down to Africa," said Robert Besseling, a principal analyst on Africa at IHS, a global research firm. "Everyone is anticipating a boom — even though it hasn't happened yet." 

Nile Capital Management

We Know Africa: From Cairo to Cape Town

For more information please call 646-367-2820

U.S. News & World Report: Why Africa Is Becoming More Accessible for Investors

Africa offers a young demographic, a growing consumer class and opportunities to build infrastructure.

U.S. News & World Report - When it comes to investing in markets outside of the U.S., Africa is often overlooked. But investing interest in the continent is starting to grow, particularly with investors who have a long-term focus.

In April, The Wall Street Journal reported that the New York State Common Retirement Fund, a U.S. pension fund, planned to invest as much as 3 percent of its assets in the region. And in November, private-equity firm The Carlyle Group bought an 18 percent stake in the Nigerian-based Diamond Bank. Multinational firms are also entering the region. Click through the following link to read the full article: Why Africa Is Becoming More Accessible for Investors

“Investors should remember that Africa is not one big economy, but is made up of many markets.”

Nile Capital Management

We Know Africa: From Cairo to Cape Town

For more information please call 646-367-2820

Emerging Markets Beginning to Move

Emerging markets outperformed US markets for the second week in a row and gained some steam over the prior week’s out performance. The MSCI emerging markets index was up 6.41%, nicely ahead of the S&P 500 index rebound of 4.71% for the past seven days. It appears that the markets are taking a breather on some of the issues that have been of concern.

Fed rates and impact on currencies. The market has strengthened confidence over where the Fed is headed: Fed futures pricing suggest no increase until 2016. If the Fed does not increase rates, borrowing costs continue to remain cheap, limiting detractors to growth.

With the feeling that the Fed is not going to raise rates this year, foreign currencies have strengthened over the past month. Consider the trough of the following currencies against the USD over the past month versus where the currencies are today. Whereas 1 South African Rand would have cost investors barely over $0.07 cents on September 28, today it costs over $0.075. Likewise, whereas 1 Brazilian Real would have cost investors less than $0.24 on September 23rd, today it costs over $0.26.

Figure 1. South African Rand versus USD

Source: Bloomberg

Figure 2. Brazilian Real vs. USD

Source: Bloomberg

Commodity trends. A number of regions outside the US tend to be rich in natural resources, including Africa and the Middle East. We note that commodities remain volatile but have shown some signs of stabilization, including oil and copper (with the miners of the latter having reduced output).

Figure 3. Commodity Futures Price Quotes for Crude Oil WTI (NYMEX)

Source: NASDAQ

Figure 4. Commodity Futures Price Quotes for High Grade Copper

Source: NASDAQ

Valuation. Emerging markets look attractive to investors on valuation. Note the following discounts between the World Index and Emerging Markets across price to earnings and price to book, both today and over the 10-year period.

Figure 5. Market Valuations As of September 30, 2015

Conclusion. While we think the last couple weeks have shown some encouraging trends that could continue through the quarter, we expect the markets to remain volatile, especially as we enter in 2016 and the Fed rates issue bounces back into investors’ minds. Given this outlook, we think actively managed funds with a long-term perspective will be critical for investors’ portfolios and believe investors should consider this opportunity to allocate to Nile. 

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

CNBC: Bob Diamond - Africa is best place to invest right now

CNBC - Investors looking to place their money outside of the U.S. should look no further than sub-Saharan Africa, Atlas Merchant Capital CEO Bob Diamond said Thursday. "There are a lot of reasons to be positive in the medium-to-long term for sub-Saharan Africa," the former Barclays CEO said in a CNBC " Power Lunch" interview. Click through the following link to read the full article: Bob Diamond: Africa is best place to invest right now

Nile Capital Management

We Know Africa: From Cairo to Cape Town

For more information please call 646-367-2820

Fed Rate Hikes - A Back Half 2016 Story, In Our View

After substantial discussion on the Street and volatility across global markets, the Fed chose to ignore the noise and announced that it will not be raising interest rates at this time. We say good for the Fed!

In our view, the Fed was essentially put in a no-win situation, so chose to ignore the noise and focus on fundamentals. Raising rates by 25 basis points makes no sense in terms of the fundamentals of the US economy; plus, further strengthening of the dollar will not help global markets over the long-term despite any near-term relief rally. Keeping rates unchanged may induce continued volatility across markets, but, in our view, the Fed did the right thing, and investors should consider such volatility as an attractive buying opportunity.

In our view, we think future rate hikes are highly unlikely until the second half of 2016 for a variety of reasons. For one thing, politics. 2016 is an election year. So, unless absolutely needed, why mess with the economy and the markets? On the other hand, by late 2016, with the Obama administration on its way out, a rate hike of 25 to 50 basis points could be the signal of a successful presidency. The president entered office at a time the country was hurting from a financial meltdown and could be exiting at a time of a much strengthened economy where a small rate hike could be justified as a new turn in monetary policy. For another thing, inflation trends. The August 2015 Inflation rate was 0.2%, versus the Fed target of 2% for a rate hike. Gas prices are a big factor driving the moderated inflation rate, with prices at the pump down 1% year-over-year. Unless a significant shortage suddenly erupts perhaps due to disruption in the Middle East, we do not foresee a major reversal of the trend. Note that gas prices today are roughly in line with prices in 2009, though with the US economy and the US consumer in a much stronger position. 

Source:  US Energy Department.

In terms of how the Fed views a sluggish Chinese economy (or, for that matter, any economy outside the US), we think that this week’s decision suggests that the US economy still remains the Fed’s focus. That is how it has always been when the world was dominated by the economies of the US and Western Europe – and that is how the Fed will continue to operate even as other economies bloom. And we agree with that philosophy.

Now, in terms of where to invest, we reiterate once again: take advantage of the market volatility to diversify portfolios. Market behavior is cyclical, and valuations in Africa and other frontier and emerging markets have come down nicely. So take this opportunity to allocate to actively managed funds focused on those regions.      

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

 

BloombergView: Africa Starts to Emerge

BloombergView - I come bearing good news about Africa. The continent is finally starting to emerge. Pessimism about Africa is so pervasive that people don't even have to say it out loud -- it's just assumed. When development economists such as Paul Collier write books with titles like "The Bottom Billion," they remember to mention a handful of countries in Central Asia, but you know the book will be almost entirely about Africa. As for the reason for Africa's benighted situation, explanations range from the legacy of exploitative colonialism to the resource curse to endemic war to the health effects of malaria. Often, in discussions about Africa, there is an undercurrent of racism. Click through the following link to read the full article: Africa Starts to Emerge.

Nile Capital Management

We Know Africa: From Cairo to Cape Town

For more information please call 646-367-2820

Bloomberg: Kellogg to Buy $450 Million Multipro Stake to Grow in Africa

Bloomberg - Kellogg Co. agreed to buy a 50 percent stake in Nigerian food distributor Multipro for $450 million and is creating a joint venture with Tolaram Africa to help expand on the continent. Chief Executive Officer John Bryant said in the statement that sub-Saharan Africa is a "tremendous opportunity" for Kellogg, with a population of almost 1 billion and an economy expected to more than double in the next 10 years.  Click through the following link to read the full article: Kellogg to Buy $450 Million Multipro Stake to Grow in Africa

Nile Capital Management

We Know Africa: From Cairo to Cape Town

For more information please call 646-367-2820

JOC: DHL pours investment into Africa to grow its coverage

JOC - HONG KONG — DHL Express will invest $20 million in sub-Saharan Africa this year to increase its footprint, taking the German logistics giant’s total investment in the continent to more than $50 million in the last year.

The investment reflected the importance of emerging markets to DHL, which Deutsche Post DHL CEO Frank Appel said contributed more than 20 percent of the group’s revenue, a figure that was expected to grow to 30 percent by 2020.

“Therefore, we will continue to concentrate on organic growth by investing into promising present and future markets,” Appel said in a statement. Click through the following link to read the full article: DHL pours investment into Africa to grow its coverage

Nile Capital Management

We Know Africa: From Cairo to Cape Town

For more information please call 646-367-2820

Forbes: Why You Should Invest In Africa's Fastest-Growing Country

Forbes - President Barack Obama’s short visit to Nairobi last month raises hopes for strengthening business ties between the U.S. and Kenya. The Kenya Investment Authority used the event to highlight the investment opportunities in Africa’s fastest-growing country. The organization, which goes by KenInvest, was established by the government in 2004 to advise investors and help foreign companies do business in Kenya.

Dr. Moses Ikiara, managing director of KenInvest, makes a case for why you should invest in Kenya. Click through the following link to read the full article: Why You Should Invest In Africa's Fastest-Growing Country

Nile Capital Management

We Know Africa: From Cairo to Cape Town

For more information please call 646-367-2820

Opportunities in the Midst of Volatility

Last week saw some volatility in the US markets, with the S&P 500 functioning like a seesaw. The week of 8/24 started off down 5% between the previous Friday’s close and Tuesday’s close, but then rallied between Tuesday’s close and Friday’s close. All-in, the week closed up almost 1% from the previous week’s close.

So what drove the volatility, particularly the rally as the week progressed? The Bureau of Economic Analysis released a revised second quarter GDP of 3.7% for the United States, beating the forecasted uptick of 3.2%. Personal consumption was up a healthy 3.1%.  

We believe that fundamentals in the US are generally sound. The most recent housing starts data released by the US Census Bureau revealed that month-to-month July housing starts were up 0.2% and year-over-year starts were up 10.1%. Consumer spending, which drives about 70% of the US economy, rose 0.3% for July, while disposable personal income rose 0.5%. Core PCE prices (excluding food and energy) increased 0.1%.

Speculation continues as to whether the US Fed will increase rates in September. We believe that this is highly unlikely. Consumer spending has not gotten out of hand, with the US personal savings rate ticking up to 4.9% in July, up from 4.7% in June. And, as we noted, core PCE prices (a measure of inflation) is minimal. Moreover, the dollar continues to remain strong: a rate hike will only further strengthen an already strong dollar, leading to further weakening and devaluation of other currencies. We are very much a one-world economy now.

To offset the devaluation of the yuan, China sold from its stockpile of US Treasuries last week. Estimates suggest that China controls about $1.48 trillion of US government debt. Our understanding is that China sells its US Treasuries to the market in USD, and then uses those dollars to buy back the yuan, driving up demand for the yuan and strengthening the yuan relative to the USD. We find it unlikely that these actions by the Chinese government to stabilize their currency will be the driver for the Fed to increase rates in September. The effect, if any, will be through the currency channel where the dollar will be weaker.

So again we ask what are the implications of all this for Africa and the global frontier markets? Local currencies and valuations have come down nicely, suggesting nice long-term opportunities for US investors, which active managers like Nile Capital Management are well-positioned to take advantage of. We believe this is an ideal time to allocate to frontier and emerging markets.

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

  

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