3:30 p.m. Registration
4:00 p.m. Panel Discussion
Opportunities and Challenges for Sub-Saharan Africa
Stephen Bailey-Smith (Standard Bank) – Moderator
Kevin Daly (Aberdeen Asset Management)
Andreas Kolbe (Barclays)
Mohammed Hanif (Insparo Asset Management)
Nema Ramkhelawan-Bhana (Rand Merchant Bank)
Additional support provided by Barclays and Rand Merchant Bank.
Attendance is complimentary for EMTA Members. The registration fee for non-members is US$695.
Crowded African Forum = Crowded Trade?
“Attendance at this event may suggest that Africa is becoming a crowded trade,” commented Kevin Daly (Aberdeen Asset Management) at the outset of EMTA’s 4th Sub-Saharan African Forum. Standard Bank sponsored the event, which was held in London on Tuesday, September 23, 2014, and drew a standing-room only crowd.
Stephen Bailey-Smith (Standard Bank) led the discussion, which touched on both the rationale for investment in African debt generally, and country specifics. The panel addressed external and local debt, with some commentary on corporate issues as well.
Andreas Kolbe (Barclays) argued that Africa’s high growth rates make the continent increasingly relevant for global investors, and underscored that African countries should not be viewed merely as commodity plays. “The question for the EM investor is how can you justify not being involved?” Mohammed Hanif of Insparo Asset Management cited high African yields in a global low yield environment.
Rand Merchant Bank’s Nema Ramkhelawan-Bhana, playing devil’s advocate, questioned if African debt levels were sustainable, while recognizing the appeal for sovereigns to issue debt at low coupon rates. African debt valuations remained stretched overall, she cautioned. Daly noted his firm’s general overweight on Africa, and that it was also entering local markets despite potential liquidity concerns.
Bailey-Smith asked how US rate hikes would affect the region. Daly responded Sub-Saharan African debt had historically fared better than other EM counterparts, due to both higher yields and scarcity value (“a lot of these bonds are the last to be sold in a portfolio”). Kolbe concurred that African debt was “not the first market you think of when you think what assets will be hurt in the case of rising Treasury rates.” Correlation to US rates hikes was lower, and much of the retail investor base departed during the Spring 2013 sell-off, leaving a “stickier” institutional investor base.
Speakers then moved to a discussion of specific assets. Ramkhelawan-Bhana viewed the yields Ghana’s ’23 and ’26 bonds as attractive for those entry points, while warning the paper was not immune to US rate moves; she advised investors to take a cautious approach until more was known about a potential IMF deal. (She argued that a deal was in both Ghana’s and the IMF’s interest; “if Ghana fails, the market might begin to question other issuers.”) Daly saw a further 50-100 bp spread compression possible in Ghana’s Eurobonds if a deal was reached, and noted balance of payments pressures had eased. “The country has lived way beyond its means, so we’ll have to see what happens with the Fund,” concluded Hanif.
Hanif spoke constructively on a number of Nigerian corporates, including Zenith Bank and Helios Towers. For him, Nigerian sovereigns were a core position, bolstered by increased oil production. Daly was involved in the short-term local treasury bill market, with an eye on any post-election changes, and signs of inflation ticking up. Kolbe expressed concern on naira depreciation. Ramkhelawan-Bhana remained neutral on Nigerian Eurobonds (“there is value to be had on the long-end, but elections are coming up.”)
Kolbe suggested that the market may have been too bearish on Zambia, with the caveat that such a view was based on expected IMF assistance. Hanif voiced a relatively constructive view on the country, and Ramkhelawan-Bhana recommended Zambian money markets.
As for Cote d’Ivoire, “I’m not a bear, although it may be time to take profits,” Kolbe stated. Daly voiced a more optimistic approach, stating further spread compression was possible if the growth rate remains strong, but that there was downside risk if President Ouattara doesn’t run for re-election. “I like the Cote d’Ivoire story,” stated Hanif, while alluding to the country’s payment history.
Panelists also discussed prospects for Mozambique (Daly suggested profit-taking may be in order), Rwanda, Kenya, the Seychelles. Daly also was enthusiastic on Ugandan local paper (“it’s hard to find stories like that –7% real yields – and a pretty good credit outlook, but it isn’t liquid and we haven’t tested trying to get out.” On South Africa, Bailey-Smith was constructive, although cautioned that there were still downward pressures on the ZAR, while Ramkhelawan-Bhana expected central bank policies to remain unchanged despite the unexpected resignation of SARB Governor Marcus.