Trader profile: Opportunity abounds in Egypt and Nigeria

Name: Sherif Salem

Job: portfolio manager at Invest AD

Years in the investment industry: 16

Based: Abu Dhabi

What is the asset class and geography you are focused on?

I focus on long-only equity funds and portfolios, managing the Invest AD Iraq Opportunity Fund and Sicav Emerging Africa Fund. My stock-picking is based on fundamentals.

What is the outlook for the month ahead in your opinion?

The outlook for the two biggest African equity markets, Egypt and Nigeria, may be similar in performance, but for different reasons. The value of deals signed at the high-profile The Future conference at Sharm El Sheikh in Egypt, significantly exceeded expectations. This included US$12.5 billion in aid from the GCC and $54.8bn worth of new investment agreements and construction contracts from a number of corporates and governments around the world. However, much of the positive news from the conference has already been priced in which has led to a relatively flat market performance with depressed volumes, and in the absence of a meaningful catalyst, this may continue for the coming month. In Nigeria, the surprisingly peaceful victory by the All Progressives Congress opposition party attracted investors back to a market that has been largely neglected, and pushed up the index by 16 per cent in the span of one week. Following the election, the focus has returned to the economic challenges facing the oil-dependent country. Like Egypt, the Nigerian market may lack a catalyst in the month ahead since the new president will only assume office at the end of May.

What are the main risks – either upside or downside – to the outlook?

In Nigeria, analysts and investors are waiting for a devaluation of the currency, which is expected to be anywhere between 10 per cent and 20 per cent. Although the extent and timing of the depreciation is unknown, it could be the catalyst needed to attract investors for a second wave of buying. In Egypt, corporate results may provide some respite to the market’s lacklustre performance over the past few weeks. Additionally, the funds committed by the UAE, Saudi Arabia, Kuwait and Oman could help to alleviate any pressure on the US dollar when received, which may have a positive impact on the market.

What is the best investment at the moment in your opinion?

We are very bullish on Africa as a whole, but at the present time we see the most opportunity in Egypt, Nigeria and Kenya. Egypt and Kenya have both recently benefited from positive economic and political developments, and we forecast that this momentum will continue. However, we believe that the Nigerian market has the biggest upside potential of the three markets because of the political and economic challenges that have depressed it over the past six months. As Africa’s largest and most populated economy, it offers significant potential to investors, and if the new administration’s policies are able to improve the country’s finances and tackle key areas such as unemployment and oil theft, then this may provide a catalyst for the market.

What was the best investment you were ever involved in?

I have experienced success with a number of investments, but one that comes to mind is Safaricom, a telecom operator in Kenya. The company has regularly been one of the top holdings in the Invest AD Sicav Emerging Africa Fund since late 2009, and on an average cost basis we have made over three times the initial investment. Partly owned by the UK’s Vodafone, Safaricom has been at the forefront of mobile banking success in Kenya, and has set an example for many other telecom operators around the world which are trying to emulate its success in their own countries of operation.

What was the worst?

Investing in Egypt in 2012 was quite a challenging and stressful experience as the market’s roller-coaster performance was strongly influenced by political news and what was happening on the street, rising on developments and falling on setbacks. Companies were performing well, so there was justification for investing in them, but since price action was unpredictable, I got whipsawed a number times, buying as prices rose and selling as prices dropped.

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