First Quarter Developments - Fact sheets March 2024
In the first quarter of this year, the Frontier Market Index increased by 8%. Sentiment was particularly positive in countries like Kenya (+51.3%), Kazakhstan (+25.1%), and Sri Lanka (+17.5%). The largest declines were seen in Egypt (-31.5%) and Nigeria (-11.6%). On balance, positions in the portfolio focused on Frontier Markets increased by 5.2%.
The devaluation of the Egyptian pound caused price pressure within the Africa and Global Frontier Fund. With a significant measure, the Central Bank of Egypt decided on March 6 to increase interest rates by 600 basis points (6%) to 27.25%, and also to devalue the Egyptian pound. Following this announcement, the Egyptian pound became freely tradable, and its valuation was left to the market. Within a few hours, the EGP lost more than 60% of its value against the dollar. Shortly thereafter, the IMF announced it would provide $8 billion to Egypt, which is undergoing its worst economic crisis in decades. In the short term, the devaluation of the Egyptian pound negatively affects the value of investments. However, in the long term, the measures taken could turn out to be favorable for the country. Stock prices seem to be supported by an expected increase in corporate profits. Bloomberg predicts an increase of about 49% in corporate profits for 2024, indicating a strongly recovering economy. For foreign equity investors, the reforms carried out may be a reason for interest in Egyptian stocks, after they have been sidelined for a long time due to the expected devaluation.
During Q1, new reforms were also announced in Nigeria. The Central Bank of Nigeria set a limit on the amount of foreign currency reserves that banks may hold and adjusted the methodology for calculating exchange rates for exporters. This resulted in a devaluation of the Nigerian currency, the naira. For Nigeria, these reforms, including the abolition of fuel subsidies by the new president Bola Tinubu, mean that funds are finally being freed up for essential investments in infrastructure.
On the Kenyan stock exchange, the loss (-40%) from last year was largely recovered (+51.3%) during the first quarter. Safaricom, the largest position within TCM Africa, even recorded a 62% increase at the end of the quarter. The strong rise of the Nairobi Securities Exchange was the result of a combination of factors, including an improved economic climate, increasing foreign interest from investors, and strong performances in specific sectors such as the financial sector. Additionally, the Kenyan stock exchange was upgraded from 'restricted' to 'pass' by FTSE Russell. This means that there were previously bureaucratic delays concerning the retrieval of invested capital by institutional investors. These delays have been resolved, making the Kenyan market more attractive to foreign investors.
In Vietnam (+13.1%), sentiment was also positive, with the economy growing by 5.7% in the first quarter. The agricultural sector grew by 3.4%, industry by 6.3%, and the service sector by 6.2%. Growth was stimulated by demand from China, the recovery of exports to the U.S., increasing construction activities, and the return of tourists. The positive market sentiment was briefly pressured after Vietnamese President Vo Van Thuong was forced to resign, just over a year after his appointment. The reason for this was an anti-corruption campaign that had damaged his reputation and that of the Communist Party. On the other hand, investors reacted positively to the possible upgrade of Vietnam to Emerging Market status by FTSE Russel. According to the World Bank, this upgrade could lead to an inflow of $25 billion into Vietnamese markets over the coming years.
More news about Vietnam, Africa and the Global Frontier fund can be found in the latest fact sheets of the equity funds:
TCM Global Frontier High Dividend Equity
TCM Vietnam High Dividend Equity
TCM Africa High Dividend Equity