Basson van Rooyen, Portfolio Manager, Sanlam Investments
As the winter cold quickly becomes a memory and the first drops of rain start to fall, Namibian Investors are hoping for some good news as we head into the last quarter of 2019. The Namibia Meteorological Service forecasts a promising rainy season with a 75% prediction of normal or above-normal rainfall during the final quarter of 2019. With the drought breaking, hopefully, we can gain some positive momentum in turning the negative trends that has been around for the last 3 years. This quarter we will also be witnessing the voting polls for the Presidential and National Assembly elections, which was carried out peacefully in the past, and even though we see the first Independent Candidate on the ballot role, no major upset to the ruling party is expected in the results of elections on 27 November 2019.
With the outlook of rain on the horizon, unfortunately, the numbers coming out on the economy have continued to disappoint into 2019 with the announcement of the 2nd quarter GDP figures. Continuing on the 3 dismal years before 2019, where the average yearly GDP growth came in around 0.1%, 2019 is building up to be the worst year yet with Q1 coming in at annualized -2.9% and Q2 at -2.6% and possibly the worst year since the turn of the century. The two largest contributors to the most recent decline in the GDP figures being Agriculture, which is down 28% over a 1-year basis, Mining and Quarrying, which is down 20% over the same period. With the Agricultural sector hard hit by the drought and pests, it will take time to rebuild national herd and rehabilitate the soil. The drop in Mining and Quarrying is mostly due to slowing diamond output on weak international demand.
The Monetary Policy Committee (MPC) of Namibia has followed the SA MPC during August and cut the Repo rate by 0.25%. The first cut since August 2017, citing the sorely needed support to domestic economic activity, as main reason. The Namibian Inflation rate continued on its downward trajectory in 2019 with a transport segment dropping to 2.5% year on year during September and Alcohol and Tobacco dropping to 3.3%. This is the lowest year on year number recorded since July 2015 and brings the year-to-date average inflation number for 2019 to 4.1%.
As we moved into the reporting period for the locally listed shares the Namibian investor has been somewhat rewarded for sticking with the Namibian Listed companies during a slow 2019 year. A few notable happenings during the quarter were FirstRand Namibia declaring a special dividend, which together with the final dividend gave investors a 6% return over the quarter. Oryx also declaring a respectable distribution of 71 cents which brings their 2019 financial year distribution to 150 cents and a yield of 7.7% to the investors. Namibian Breweries has delivered a large boost in profits coming out of its joint venture with Heineken SA and also declared a special dividend of 121 cents, all helping the holder of Namibia Breweries shares seeing a total return of 15.7% over the last year. All this has contributed to Local Shares being one of the best performing asset classes for the local investor over the quarter, NSX Local delivering 3.7% and 5.5% over last year.
With the Namibian bond spreads contracting strongly from around October 2018 where we’ve seen most of the Namibian Bonds spreads halved from where they were to an average of below 1% over their SA comparative bonds. It does seem with the last step up in required Namibian asset holding requirements for insurers and pension funds on 31 March 2019, the strong demand has started drying up during the last quarter. This has meant the best performing asset class for most Namibian investors over the last 3 years has only delivered a 1.5% return over the quarter and 15.7% return over the last year.
Namibian cash instruments have also been delivering a lower return over the last quarter as we see the combination of lowered repo rate and high liquidity levels in banks. This has pushed the Namibian 91 day TB rate to 7.05%, lowest rate so far recorded in 2019 and bank 91 Day NCD rate to 6.92%, 3-year low levels and matching SA 91 day NCD rate that is around 6.90%. IJGMM index delivering a return of 1.8% over the last quarter and 7.6% over last year while SA STEFI came in at 1.8% and 7.4% over a comparable period.
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