Tag Archives: Africa

Fed Gives African Central Banks Reprieve to Hold Rates

Bloomberg, Sep 21, 2015

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* South Africa, Nigeria, Kenya to keep rates unchanged this week
* Policy makers have been tightening policy amid currency slump

African policy makers worried that the U.S. Federal Reserve’s liftoff will roil their markets even further, have room to breathe. For now.

Central banks across Africa have bucked a global trend by tightening monetary policy to ward off inflation threats as their currencies slumped against the dollar. ForSouth Africa, Nigeria and Kenya — three of the four biggest economies in sub-Saharan Africa that will decide on interest rates this week — the Fed’s decision to delay raising borrowing costs gives them a temporary reprieve.

“We should see less hawkish monetary policy committees next week, particularly in the countries where the currencies have come under pressure,”Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, said by phone on Sept. 18.

From Ghana to Zambia, Africancurrencies have been among the worst hit by a slide in investor sentiment toward emerging and frontier markets. The prospect of higher U.S. interest rates is driving investors away from riskier assets at the same time as a slowdown in China fuels a slump in global commodity prices.

In South Africa, where therand has weakened 14 percent against the dollar this year, the central bank has raised the benchmark interest rate twice since July last year even as the economy risks falling into recession for the first time since 2009. Eighteen of 20 economistssurveyed by Bloomberg forecast the Reserve Bank will leave the key rate unchanged at 6 percent on Sept. 23, with two predicting a 25 basis-point increase.

“Following the Fed’s decision to hold back, I think the most probable outcome for our MPC would also be unchanged interest rates,”Elize Kruger, an economist at KADD Capital in Johannesburg, said in an e-mailed note to clients. This is “predominantly due to the deteriorating local economic outlook and lower oil prices.”

The rand fell 1.1 percent to 13.4769 against the dollar as of 5:56 p.m. in Johannesburg on Monday.

Investors have pared back bets of higher borrowing costs in South Africa this year, withforward-rate agreements starting in three months, used to speculate on interest rates in the period, pricing in 20 basis points of increases, down from 45 basis points on Aug. 24.

Yields on rand-denominated government bonds due December 2026 climbed nine basis points this year to 8.35 percent on Sept. 18. Yields on Kenya shillingbonds due October 2024 rose 80 basis points this year to 12.8 percent on Sept. 18, while in Nigeria, rates onnaira debt maturing in March 2024 rose 48 basis points to 15.61 percent. That compares with a drop of 19 basis points to 4.83 percent in averageyields on the Bloomberg Emerging Market Local Sovereign Index.

Nigeria andKenya, which are due to announce rate decisions on Tuesday, are set to keep their benchmark rates at 13 percent and 11.5 percent respectively, according to most of the economists surveyed by Bloomberg. The Kenyanshilling has slumped 14 percent against the dollar this year, prompting the central bank to raise borrowing costs by 300 basis points since June.

The Fed’s decision provides the Central Bank of Kenya “an opportunity to freeze rates,” Robert Bunyi, managing director of investment company Mavuno Capital, said by phone from the capital, Nairobi. “If the Fed had raised rates, it would have put more pressure on the shilling as the dollar appreciates, and as money flows back to U.S. Treasuries.”

Ghana’s Action

In Nigeria, GovernorGodwin Emefiele has kept the policy rate unchanged since raising it by 100 basis points in November. He has resisted pressure to devalue the naira following a slump in oil revenue, imposing foreign-exchange restrictions instead to stabilize the currency.

Ghana’s central bank took pre-emptive action by raising the benchmark interest rate by 100 basis points to 25 percent three days before the Fed’s announcement last week. Finance MinisterSeth Terkper said in an interview on Sept. 18 that the delay in monetary-policy tightening in the U.S. is good news and “with the worrying signals, particularly from China, the Fed decision gives relief to emerging markets.”

That reprieve may not last long, particularly for African countries running large fiscal and current-account deficits, according to Moody’s Investors Service. Nations such as Ghana, Uganda, Nigeria, Angola and Zambia are facing the prospect of possible outflows because of higher U.S. interest rates, Rita Babihuga, an assistant vice president at Moody’s, said in a report.

“Everybody will still be looking ahead as to when the potential U.S. rate hike will come and the potential impact,”Ridle Markus, an analyst at Barclays Plc’s Africa unit, said from Johannesburg. “For now, they are relieved that it has not happened.”

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Who’s Next in the Currency Market’s Race to the Bottom?

Bloomberg, Aug 20, 2015

Kazakhstan just intensified the global currency war.

By allowing a 23% plunge in the tenge, central Asia’s biggest oil exporter signaled a new wave of devaluations in developing nations forced to compete against weaker currencies. Egypt and Nigeria look the most vulnerable to John-Paul Smith, the ex-Deutsche Bank AG strategist who predicted Russia’s 1998 crisis and this year’s China’s rout.

To Bernd Berg, a London-based strategist at Societe Generale SA, African currencies like the rand and those of former Soviet Union countries “will be next.”

Developing nations are under increasing pressure from devaluations by China and Russia, plunging prices for commodity exports and the prospect of higher U.S. interest rates. Kazakh President Nursultan Nazarbayev, who earlier this year pledged to avoid any sharp depreciation, said today’s adjustment was essential to avoid a recession.
“The major commodity exporters are the most vulnerable,” Smith, who founded Ecstrat, a London-based research firm, said by e-mail today. “If, as I believe, the oil price is likely to remain at currently depressed levels or even move lower over the medium term, then the main Gulf currencies will come under increasing pressure, although there will be ferocious political resistance to any devaluation.”

Egypt has struggled with a foreign-currency shortage since the 2011 Arab Spring protests sent investors and tourists fleeing. It has attempted to fend off further weakness after this year’s 8.6 percent slump in the pound by limiting access to hard currencies. Egyptian investors are barred from buying shares locally and selling them abroad, for example.

Trading Restrictions

In Nigeria, trading restrictions imposed in February to prevent the flight of dollars have left importers unable to pay suppliers while the black market in foreign banknotes thrives. The naira had tumbled 20 percent in the 12 months to February.

Former Soviet states that may struggle to withstand depreciation pressure include Armenia, Azerbaijan and Georgia, according to Timothy Ash, a credit strategist for emerging markets at Nomura International Plc in London. Most have less ammunition than Kazakhstan, which has almost $100 billion reserves.

“This will shine the spotlight again on a host of regional currencies, including the manat, lari, dram,” Ash wrote in a report to clients. “The Kazakh experience this week will leave an over-riding understanding that one should take what your central bankers say with a very large pinch of salt.”

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Easy Money Outweighs Fed to Fuel Record Debt Flows to Asia Haven

Bloomberg, Feb 27, 2015

This year was tipped to be the one when U.S. interest-rate increases would suck money from emerging markets. It’s not turning out that way in Asia.

Unprecedented economic stimulus from Europe to Japan has prompted investors to pump a combined $14.4 billion into Indian, South Korean and Indonesian local-currency government debt this year, the most on record for the three markets, exchange data show. That’s helped cut the average yield on emerging-market sovereign notes in Asia by 21 basis points to 4.19 percent, compared with the 4.72 percent for developing nations globally.

The flows underscore the growing investor conviction that as the Federal Reserve prepares to raise U.S. borrowing costs for the first time in nine years, Asia is best-placed to weather the impact. While falling oil prices are supporting the external balances of nations from India to Turkey, political and corporate scandals in Brazil and Argentina are sapping confidence in Latin America and the crisis in Ukraine is fueling a cash exodus from Central Europe.

“Unlike emerging-market Europe and Africa and Latin America, Asia is comparably free of political uncertainty,” Yerlan Syzdykov, who helps oversee the equivalent of $239 billion as head of emerging markets at Pioneer Investment Management Ltd. in London, said in a Feb. 16 e-mail. “Although an increase in U.S. interest rates will generally affect emerging-market countries negatively, we may still see outperformance from Asian bonds.”

Funds Unleashed

Local-currency sovereign debt in Asia has returned 2.3 percent this year, led by an 8.4 percent advance in Indonesia and 2.6 percent gain in China, Bloomberg indexes show. Latin American securities lost 0.4 percent, while those in Europe, the Middle East and Africa fell 0.7 percent.

Funds focused on Asian bonds attracted $1.1 billion this year through Feb. 20, a reversal of the $654 million in outflows in the same period of 2014, according to EPFR Global. Latin American funds attracted $44 million, while those from Europe, Middle East and Africa had withdrawals of $48 million.

Futures contracts indicate there’s a 59.5 percent chance that the Fed will start raising interest rates before the end of October, compared with 46.5 percent at the end of January.

The European Central Bank said Jan. 22 it would buy 60 billion euros ($68.13 billion) of debt a month through at least September 2016, while Bank of Japan in October raised its annual target got enlarging the monetary base to 80 trillion yen ($672 billion). More than a dozen monetary authorities from Australia to China to Canada have eased policy this year.

“The influence of the Fed and its eventual tightening cycle is diminished at least in the near term” as funds unleashed by central bank easing need to find a home, HSBC Holdings Plc strategists led by Hong Kong-based Andre de Silva wrote in a Feb. 12 report.

Inflow Figures

Overseas investors have pumped $5.35 billion into India’s local-currency bonds so far in 2015, the biggest amount at this stage in any year going back to 1999. Indonesia’s sovereign debt has attracted 46.99 trillion rupiah ($3.7 billion), the most since at least 2002, and South Korea’s $5.34 billion of inflows compare with $2 billion for the same period in 2014.

A 45 percent drop in the price of Brent crude since June has benefited most Asian economies, Thiam Hee Ng, a senior economist at the Asian Development Bank in Manila, said in a Feb. 13 e-mail. Indonesia all but eliminated fuel subsidies from Jan. 1, while India ended controls on diesel and raised natural gas prices in October.

Russia, already facing international sanctions related to the conflict in Ukraine, has been buffeted by the decline in crude prices. In Brazil, a kickback scandal ensnaring state-controlled oil producer Petroleo Brasileiro SA is roiling the nation’s financial markets and prompting renewed calls for the impeachment of President Dilma Rousseff.

‘Safe Haven’

“Asia is kind of a safe haven within the emerging markets,” Ben Sy, the Hong Kong-based head of fixed income for Asia at JPMorgan Chase & Co.’s private-banking unit, said in a Feb. 17 interview. “Emerging markets as a whole aren’t doing well. For Latin America, the default rate will increase as many of their bonds are energy-related or involve companies linked to an ongoing corruption investigation. Eastern Europe is close to Russia and Ukraine.”

The extra yield offered by Indonesia’ 10-year bonds over similar-maturity U.S. Treasuries narrowed by 59 basis points this year to 504, data compiled by Bloomberg show. That was the biggest drop in the region, followed by a decline of 28 basis points for the Philippines to 192 basis points.

Manulife Asset Management Ltd. says it’s cautious on Asian bonds because yields are likely to climb when the Fed starts raising rates in the second half of the year, according to Endre Pedersen, who helps manage $45 billion as chief investment officer for Asian fixed income outside of Japan.

“Rates are still going to hurt you massively,” Pedersen said in a Feb. 10 interview in Singapore. “We are very much cautious on rates.”

Stable Currencies

The Philippines, Vietnam and Sri Lanka are the most probable emerging-market candidates for credit upgrades, Regis Chatellier, a strategist at Societe Generale SA in London, said in a Feb. 17 research note.

“I don’t think there will be a large pull-out” when the Fed raises borrowing costs, said ADB’s Ng. “The market has mostly priced in the rate rise. The gains in Asian sovereign local bonds this year likely reflect improving macroeconomic fundamentals.”

Analysts are cutting projections for Asian bond yields, Bloomberg surveys show. The median forecast for China’s 10-year rate at the end of 2015 was 3.46 percent in a monthly poll published Thursday, down from 3.95 percent in November. India’s was seen at 7.4 percent in January, 60 basis points lower than predicted two months earlier. Current levels for the two nations are 3.36 percent and 7.74 percent, respectively.

Least Volatile

Asia is luring global funds because its currencies are the least volatile among developing nations, while there are prospects for deeper rate cuts in India and China, according to HSBC. The People’s Bank of China lowered benchmark interest rates in November for the first time since 2012, followed by the Reserve Bank of India with a surprise cut in January.

“Higher U.S. Treasury yields are about Number 324 on my list of concerns,” Edwin Gutierrez, who helps oversee $13 billion of emerging-market debt as a money manager at Aberdeen Asset Management Plc in London, said in a Feb. 20 e-mail. “In a world where every other central bank is cutting and more countries head to negative interest rates, I don’t worry about the overall global liquidity situation.”

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Gold Miners Are on the Hunt for Assets as Prices Climb

Bloomberg, Feb 11, 2015

Gold producers with cash on hand are on the hunt for cheap mining assets as rising prices drive shares higher.

During a 12-year bull run that ended last year, about $30 billion in debt was racked up by companies that mine gold. Those that minimized borrowing then are in the best position now to scoop up mines from rivals with weaker balance sheets, said executives at the Investing in African Mining Indaba conference in South Africa, the biggest such gathering on the continent.

Already, $2.7 billion in deals have been announced or completed this year within the industry, including Monday’s $1.1 billion offer for Rio Alto Mining Ltd. by Tahoe Resources Inc. It’s an early leg-up on the $10.5 billion in deals last year.

“Gold is one of the brighter spots out there in the commodities space today,” said Rajat Kohli, head of metals and mining at Standard Bank Group Ltd., Africa’s largest lender. “I would expect corporate activity to be reasonably pronounced in gold, not just in Africa but globally. We will see a few transactions, definitely.”

The price of gold jumped 8.1 percent last month in the biggest rally since January 2012. Currencies in Europe and Asia are sliding, and as policy makers introduce stimulus packages to battle cooling growth, investors are flocking to the metal.

Randgold Resources Ltd., the best-performing gold-mining company in the past decade, has been “flat out” besieged with offers to buy assets, Chief Executive Officer Mark Bristow said in an interview.

‘Bidding Process’

“People are a bit more confident to move from the sidelines into a bidding process,” Srinivasan Venkatakrishnan, CEO of AngloGold Ashanti Ltd., said in an interview today. The world’s third-largest gold miner is looking to sell assets or form joint ventures to reduce debt, he said.

Kinross Gold Corp., Canada’s third-biggest producer, is also optimistic about the opportunity for deals.

“As the clock ticks on with this gold environment, balance sheets, access to capital, those all sometimes become catalysts for M&A,” CEO Paul Rollinson said Dec. 10. “Our strategy has positioned us well to perhaps be opportunistic in that regard.”

For signs that the gold M&A market is recovering, look at Tahoe Resource’s $1.1 billion cash-and-stock offer Monday for Rio Alto, the largest gold deal in almost 10 months.

Acacia Mining Plc has said it’s looking to do a transformational deal this year, and the best ground in Africa has never been cheaper.

That view is shared by B2Gold Corp. President Clive Johnson. The Africa-focused gold producer paid $570 million for Papillon Resources Ltd. to gain control of a project in Mali last year.

‘Licking Wounds’

“A lot of people in our sector are a little scared to do deals, to step up and do something that may be considered a risk,” he said. While some companies “are licking their wounds, we’re out doing acquisitions and growing the company very aggressively.”

There’s also more appetite for gold in the public markets. The 14-member Bloomberg Intelligence Global Senior Gold index is up 22 percent this year, outperforming the 42-member MSCI World Metals and Mining index, which is down 0.3 percent.

Gold companies are taking advantage by raising $852 million through public offerings this year, including more than C$900 million ($719 million) last month from Canadian producers Romarco Minerals Inc., Detour Gold Corp., Osisko Gold Royalties Ltd. and Yamana Gold Inc.

Rising share prices are also helping fuel deals, said Andrew Lapping, who helps manage $39 billion at Allan Gray Ltd. in Cape Town.

“Not many companies could make acquisitions for cash so the higher share prices give them some more currency,” Lapping said Tuesday in an interview. “If you’re an astute buyer of assets in this market you’re going to do well.”

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