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Rencap sees pockets of value in Sub-Saharan Africa despite weak growth

08 May 2017, 02:03 pm
Financial Nigeria
Rencap sees pockets of value in Sub-Saharan Africa despite weak growth

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In Nigeria, Rencap said the new foreign exchange window created by the Central Bank of Nigeria for investors and exporters allows trades at market-determined rates.

Yvonne Mhango, Sub-Saharan Africa Economist, Renaissance Capital

Renaissance Capital, a Russian investment bank, said today that it sees pockets of value in some economies in Sub-Saharan Africa despite lacklustre growth in the region caused by the slump in commodity prices.

“We are constructive on Ghana and Zambia, where inflation has fallen and interest rates are easing,” Rencap said in a note written by Yvonne Mhango, the bank’s Sub-Saharan Africa Economist. “We are cautious about East Africa, where poor rains and weak credit are subduing growth. That said, we think some headwinds are short-term, which should mean upside for Kenya in 2018.”

In Nigeria, Rencap said the new foreign exchange window created by the Central Bank of Nigeria for investors and exporters allows trades at market-determined rates. The Moscow-based bank said the CBN’s decision is positive for the economy and the naira currently trades at rates that is “the best indicator of where the market thinks the naira should be trading.” The naira closed at N383 per dollar at the CBN investors/exporters window on May 3rd.

“We see FX liquidity improving at this window, but it is likely to be slow-going, given that trades are on a non-electronic platform,” Rencap said. “While we think the recent improvement in FX liquidity is positive, we believe sustained FX restrictions will delay a meaningful recovery, particularly in the consumer and cement sectors. We recommend the more liquid banks, including GTBank, Access and Zenith.”

In Ghana and Zambia, Rencap said the pick-up in the countries’ stock market equities reflects stronger growth prospects and it follows interest rate cuts due to softer inflation. On the fixed income front, however, Ghana’s Eurobonds widened with respect to Zambia’s, in spread terms, the bank said.

“Zambia’s Eurobond spreads tightened considerably in anticipation of an IMF deal,” Rencap said. “Ghana’s fiscal woes are reflected in the exceptionally cheap cedi. Ghana’s eurobond is likely to remain cheap in the short term relative to Zambia’s, which, like the kwacha (which we see as fairly valued), is vulnerable to possible delays in an IMF deal.”

Rencap said East Africa’s 2017 growth has been tempered by a drought and tepid credit growth, and by an interest rate cap in Kenya. Upcoming general elections in Kenya on August 8th also worries investors as the poll could easily lead to a downturn in the country, if it becomes violent.

“That said, we see a 60% probability that uneventful elections, better rains and removal of the rate cap could make Kenya a 2018 turnaround story,” Rencap said. “We prefer East African banks and consumer stocks vs those of West Africa. Despite short-term headwinds, we think the banks operate in a more stable environment, and consumer stocks benefit from faster growth, lower imported raw material content and more attractive valuations.”


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