Imperial latest victim of sales slump

Imperial Holdings Ltd., South Africa’s largest automobile dealer, snnounced the worst car sales in almost two decades. Earnings per share before one-time gains fell to between 4 rand and 4.50 rand in the last six months.

Imperial booked a 485 million-rand ($48 million) profit from the sale of its 62 percent stake in Tourism Investment Corp. and a 394 million-rand foreign-currency gain from its European unit.

First Rand joins others in African expansion

Yet another bank has announced that it plans to create an African footprint. First National Bank, South Africa’s third-largest retail bank, is planning to open subsidiaries in Tanzania, Angola, Uganda, Ghana and Zambia.

OPEC maintains discipline

Saudi Arabia appears to be taking its outpu cuts seriously and is filling the role of swing producer in OPEC. Tanker loading indicated crude oil production of a bit above 8.0 million bpd. in Saudi Arabia. Qatar, Kuwait, and the UAE have also cut loading schedules for February in line with their OPEC output targets. This, combined with unexpected compliance from Venezuela, appears to be having some success in supporting the oil price.

Still, US demand continues to weaken and the price of oil in the short and medium term will remain driven by the gloabl economy.

Jordan has worlds second largest Uranium deposits

An interesting but not very well known fact: Jordan is second to Australia in its proven reserves of Uranium. That's USD 60bn of reserves!

BankMuscat sees 11% rise in net profit

BankMuscat, the leading Omani bank, saw a 29.8% increase in net interest income and a healthy 11% rise in its bottom line. We were impressed to see the cost income ratio decline to 35.6% from 40.7! Admittedly, this is due to the increase in income but it does show a focus on avoinding increasing costs which we like.

On the downside, there was a one off imparement charge.

Tiger Brands bids for AVI

Tiger Brands Ltd., South Africa’s largest food company made a formal offer to cquire AVI Limited. AVI has already rejected three offers from Tiger Brands. This time it may be different as Coronation Fund Managers Ltd., which owns a quarter of AVI, agreed to support Tiger’s bid.

Saudi Basic Industries has sharp surprise earning decline

Saudi Basic Industries Corp., other wise know as Sabic, the Middle East's largest listed company, reported fourth-quarter net profit down 95%. The number was below the bottom of analysts estimates. Net profits fell to 311 million Saudi riyals ($83 million), compared with SAR6.87 billion last year.

Kumba Iron Ore

Kumba Iron Ore, Africa's biggrest producer, announced that it will report healthy profits for 2008, however fourth quarter sales were hurt by week demand and the fall in the South African Rand.

Palm Hills development revalues property

Its not all bad on the property valuation side. Egypt's Palm Hills Development revalued its land from an older valuation. The new estimate is 70 percent more than a previous valuation.

African Investment Bank

The new African Investment Bank is expected to be operational as soon as November with an initial capital of US$4 billion, increasing to US$25 billion. South Africa, the largest investor, will be allocated at least US$4.4 billion shares. Nigeria will receive the second highest number of shares worth US$2.7 billion. The other major shareholders are Egypt, with US$2.1 billion, Algeria, Africa's third largest economy, S$2 billion and host country Libya, US$998 million.

African agriculture

African agriculture has become a hot topic since last weeks announcement that a U.S. investor lease large parts of South Sudan. This followed the news a few months ago that South Korea’s Daweoo Logistics secured rights to plant corn and palm oil in Madagascar.

Investor interest in farmland is focused on increasing food prices and demographics.
There is clearly room for improvement in the continent’s full agricultural potential. Mechanised agriculture and bigger farms will lead to major productivity gains. One word of warning however, land ownership could prove contentious. On the ground expertise is a must.

Zimbabwe issues trillion dollar banknotes

The Harare Herald reports that the Reserve Bank of Zimbabwe has introduced a new family of trillion-dollar banknotes in denominations of $100 trillion, $50 trillion, $20 trillion and $10 trillion.

Datatec Ltd warns

Datatec Ltd., the biggest computer services company in Africa, warned that it will see a full-year profit drop. Earnings per share will only be between 25 U.S. cents to 29 cents, down from 45 cents a share a year earlier.

The warning comes as a result of rapid appreciation of the dollar against a number of currencies including the rand.

Datatec sells communications and computer equipment for companies such as Cisco Systems Inc.

Orascom buys Cell One in Namibia

Orascom bought mobile-phone company Cell One in Namibia from Powercom for $59 million. Cell One has 198,000 subscribers and a 20 percent share of the Namibian market. Looks like they intend not only to be the biggest Telecom in the Arab countries we follow but Africa as well.


Orascoms stock is still up nearly 20 percent since mid-December.

Omani banking sector

Omani banking sector is strong and has not been affected by the current global financial crisis according to Hamoud Bin Sangour Al Zadjali, executive president of CBO.

Last year, the total assets of Oman's commercial banks rose 39.2 per cent to 13.7 billion Omani riyals (Dh130.15 billion). Aggregate deposits grew 38.7 per cent.

Capinnova Investment Bank launched

At a time when so many banks are going to the wall, it is refreshing to see a new bank created in the Gulf. Capinnova Investment Bank, owned by BBK, was launched as its Shari’a compliant investment banking arm. The new nank’s core business lines are Private Equity, Asset Management and Corporate Finance. Capinnova has an authorized capital of US$500 million and paid-up capital of US$125 million.

Kenya’s declares National Emergency

Kenya has declared a National Emergency because of the drought affecting the north and east of the country. 10 million people, some 30% of the population, are affected.

The crisis is affecting rural and non-industrialised parts of the country. The ports and tourist areas, as well as manufacturing centers, are so far unaffected. GDP is being downgraded, inflation is likely to to increase and the current account deficit will widen.

Lebanons network renewal attracts bidders

The Lebanese Telecom industry is set for a shake up with the expiry of MTC Touch and Alfa's license. Orascom Telecom Holding, France Telecom and Kuwait's Zain have all submitted offers their cellular networks.

Unusually, the Lebanese contracts are for one year and are subject to renewal only once. Lebanon currently has 1.3m mobile subscribers.

Naira interbank market suspended

In a suprise move the interbank market in Nigeria was suspended. The market opened today with an exchange rate of NGN 146.50 to the US$ but within half an hour this had detrriorated to NGN 153 to the US$.

More oil finds in Ghana

Our opinion that the oil potential in Ghana is far larger than officially disclosed was confirmed after Tullow Oil and Anadarko Petroleum made another discovery in their Jubilee field. The drilling showed the field extended far further to the southeast than previously thought.

Global Investment House defaults

Global Investment House, Kuwaits biggest institutional investor, defaulted on a $200m loan and had appointed HSBC to renegotiate its debts.Rumours were that the Kuwaiti government would bail them out but that appears not to have happened.

Fitch immediately cut its rating to C. and Standard & Poor's cut the group's rating to "speculative default", both a far cry from last weeks investment grade rating.

The biggest creditior is German investment bank WestLB

Oil volatility

Oil price volatility is on the rise again. Turmoil in Gaza, combined with output cuts by OPEC and the Russia and Ukraine added dispute is also driving oil prices up. Economic data, at the same time, continues to deteriorate and drive prices down. This all adds to volatility. Today, oil fell 8% since to US$46.58/bbl.

Crude inventories are at an eight-month high. Looks like the upside is limited.

HSBC begins coverage of African telecoms

HSBC has begun coverage of Kenyan telecoms, confirming our view that these markets will continue to attract attention despite the global slowdown. Safaricom Ltd., and Celtel Zambia Plc were rated “underweight”. AccessKenya Group Ltd., the only publicly traded Internet company in the Kenya, was rated “overweight”.

HSBC notes that handsets are becoming more affordable and that the roll out of fiber optic cables will drive internet broadband penetration.

South Africa

Daniel Broby is currently visiting Silk Invests South African office. He reports that the South African market appears to be 'relatively' resilient in the face of the global slowdown. That said, the JSE fell yesterday and today following six days of gains and the mood is deteriorating. Industrials are statring to experience negative sentiment. Arcelormittal reoported a decline in factory output and this only reinforces the message that manufacturing data has been in decline for two months now.

The rand is likely to remain vulnerable to risk aversion.

Anglo American PLC

Anglo American PLC, which represents about 10% of the South African index, has been one of the worst performers among the world's major diversified mining companies.It has now addressed issues with its under-performing management team. Chief executive officer, Cynthia Carroll, is focusing on cost savings which should help. The stock, however, will require In the scenario both a weaker South African Rand, and a stronger price for platinum, rhodium, palladium and diamonds in order to regain its comparative position against other majors.

Uranium One joint venture

South Africa's Uranium One has entered into a Joint Venture with Mitsui & Co., Ltd. of Japan. Mitsui has acquired a 49% interest in the Honeymoon project which they will jointly devleop.

Uranium One is one of the world`s largest publicly traded uranium producers,
with assets located in Kazakhstan, the United States, South Africa and Australia.

Saudi Hollandi Bank issues sukuk bond

Saudi Hollandi Bank has just issued an Islamic bond issue with a 10-year maturity. Pricing was 200 basis points above the Saudi Interbank Offered Rate 3.1925 percent for one-year maturities.

UAE Sunday trading

UAE stock markets will remain closed on Sunday as a mark of respect following the death of Sheikh Rashid bin Ahmed Al Mualla, former UAE Supreme Council member and ruler of Umm al-Quwain.

Egyptian rally attributed to foreign investors

The year end rally in Egypt was attrributed to Non-Arab foreign investors. Analysis shows that these investors accounted for more than 22 percent of the turnover in the market in the final days of 2008.

Kuwaiti banking sector robust

The Central Bank of Kuwait has announced that Kuwaiti bank assets are 40 billion dinars ($144 billion), their highest-ever average. Bank assets increased 12.6 percent n 2008. The figures included claims on the government which came to two billion dinars, as well as foreign assets (9.8 billion dinars), local interbank deposits (739 million dinars), and other assets.

The good news is only overshadowed by the fact that credit facilities are also on the rise.

New year message

After a dramatic year in 2008, we enter the New Year reaffirming our faith in the African and Middle Eastern story. At Silk Invest we have spent the year building our platform and planning the launch of our funds. The fact that financial markets faced unprecedented events and almost stopped functioning did not deter us. We believe 2009 will be another challenging on a macro and on corporate levels but we also believe that we are now well positioned to address these challenges. Our portfolio managers believe the key question for 2009 will be how to go re-engineer growth and improve fundamentals but they have strong conviction in the now attractive fundamental value that we find in our markets.

We shall be planning a number of marketing trips in early 2009 to highlight our view that Arab and African markets have very strong fundamentals and are well positioned to strongly outperform both developed as developing markets. In our opinion, the key catalysts for this are:

Growth - While predicting around 1% growth for the global economy, the World Bank still predicts growth of around 4% for both regions

Population - The population mix and its annual growth of 2-3% is sustaining the growth in demand in especially the consumer sector

Corporate earnings - Current market valuations price in a deterioration of earnings of close to 50% while most companies in the region are still expecting positive earnings growth

Trade - Although the global trade growth will be minimal in 2009 growth among developing growth is still strong

On the risks side, most investors mention the impact of lower potential commodity prices on these economies. While commodity prices may affect certain sectors or countries, we think that the overall impact is limited. First, most of these countries are in much shape due to the combination of low sovereign debt levels, strong financial reserves and the size of their wealth funds. Second, not all countries in this region are resources rich and in fact different of our key investment markets will benefit from lower commodity prices. Third, even in the commodity rich countries, lower prices will lower inflation pressure and will lower the costs of the petrochemical and logistics industries in these countries. Fourth, FDI may go down but remittances have historically been very resilient and have grown through different cycles.

Silk Invest is closing the year with an even bigger commitment to frontier markets. Over the last weeks we have strengthened our proposition by integration frontier markets hedge funds specialist Danfonds under our platform. Attached you can find a press release which we will send out to the media. Our new team of 15 specialists makes us the most credible proposition in the market and we hope it will allow us to strengthen our relationship in the coming year. We will contact you in the coming weeks to further introduce our team and in the mean time please also check our updated website www.silkinvest.com.

In conclusion our key hypothesis is that these frontier markets will show a strong corporate earnings quality and that investors will be less driven by panic but more by fundamentals.