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Investors like Naspers more than ever

The year 2022 was mostly a hard one for Naspers (ISIN: ZAE000015889), the South African publisher that, formerly, was Africa's hottest tech company.

Naspers’ troubles began in 2021, when the Chinese government tightened its grip on that country’s tech sector. That led to a sell-off in Tencent (ISIN: KYG875721634) in which Naspers holds a 30% stake. Between the end of January 2021 and the end of October 2022, Tencent’s share price plunged 74.1%. As a result, Naspers' stake, which was once worth USD 100 billion, was worth just a fraction of that by the fall of 2022.

Naspers troubles got worse on 24 February 2022 when Russia launched an invasion of the Ukraine and started a war. This was because of Naspers’ 26% stake in Mail.ru, the operator of a Russian social media provider called VKontakte (VK).  

Due to the reputational risk of part owning Mail.ru, Naspers’ share lost 47% of its value between late February and May 2022. The tanking of the share then prompted Naspers’ CEO Robert van Dijk (49) to limit the damage caused by the company’s exposure to China and Russia.

In June, van Dijk sold Naspers’ 4% stake in Chinese e-commerce provider JD.com for USD 3.67 billion. Then in November, Naspers’ exited Russia by selling its stake in VK for USD 409 million.

Investors cheered van Dijk’s retrenchment, leading to a dramatic recovery in Naspers’ share. Since 21 October 2022, its share price is up an impressive 97.8% to ZAR 3344.94 (EUR 180.01) - its highest level since 2021. However, we would point out that within a few months, Naspers has abandoned its strategy of pursuing tech investments in emerging markets. And we ask the question: What is the company’s new strategy?

 

East Africa prepares single currency

The move is truly an historic one for Africa. The seven member states of the East African Community (EAC), namely Kenya, Uganda, Tanzania, Burundi, Rwanda, South Sudan and the DR Congo, are teaming up to form a monetary union. Their currencies are to be combined to create a new single currency.

This year, the heads of state from the countries will choose the city that will host the central bank that will issue and govern the new single currency. The new central bank will be called the East African Monetary Institute (EAMI) and it will prepare the single currency’s launch by 2026.

According to EAC Secretary General Peter Mathuki, the monetary union “will allow us to harmonise the fiscal and monetary policies of the member states.” That may sound promising to some. But we would point out that such harmonisation was a birth defect of Europe’s monetary union. For example, the ECB is wary of raising interest rates too high to curb inflation in the bloc. This is because some southern European countries could become insolvent if the ECB acted too forcefully. A similar situation is conceivable for East Africa. For if the EAMI’s monetary policy proved tight for even some of the EAC’s members, that could harm the new bloc’s economy and have negative consequences for financial markets.

We do not want to downplay the EAC’s achievements since its renaissance in 2000. But we have doubts that a single currency would allow its members to grow closer together. This is because the EAC’s members couldn’t be more different. Consider that Burundi has a GDP of just USD 865 per capita. South Sudan’s is even lower at USD 825. By comparison, the DR Congo’s GDP per capita totals USD 1328, while Kenya is the wealthiest of the bunch with a ratio of USD 6122.

We applaud the progress the EAC has made. But we feel that if their integration is to succeed, the member countries must do more to overcome economic imbalances between them. One example would be to adjust the countries’ exchange rates in an appropriate manner.

 

Morocco wants to restore confidence in its treasury bills

Bank Al-Maghrib, Morocco’s central bank, has launched a purchase programme for government treasury bills called „Bons du Trésor.” The central bank intends to take these bonds out of the market and, hence, reduce the amount of money in circulation. The move comes amid record inflation in Morocco. Last November 2022, the official inflation rate hit 8.3%.

Another aim of the programme, according to Younes Issami, the acting head of monetary operations and exchanges at Bank Al Maghrib, is to restore demand for the Bons du Trésor. In the event, Morocco’s central bank is purchasing MAD 1.3 billion (EUR 118 million) worth of the bonds. The average maturity of the bonds is around three months and the average return 3.16% per annum.

To fight inflation in Morocco, the central bank raised its key interest rate in late December by 50 basis points to 2.5%. The interest rate hike, however, sparked protests in the kingdom as many low-income sections of the population are suffering from higher interest rates.

 

Seed Co joins the Victoria Falls Exchange

Seed Co Ltd (ISIN: ZW0009011504) has joined the Victoria Falls Securities Exchange (VFEX), a hard currency stock exchange established by the Zimbabwean Stock Exchange (ZSE). Seed Co is a major seed supplier in the region, specialising in seeds for maize (73% of sales), wheat (13%) and soja (10%).

The VFEX was established after foreign investors fled from Zimbabwe due to the country’s economic troubles, including runaway inflation. Stocks on the VFEX are traded in USD, and until Seed Co, only six companies were listed on the bourse. Their combined market capitalisation is just USD 662 million. Last week, turnover on the VFEX was under USD 65,000 per day. Foreign buys totalled zero, while foreign sales totalled USD 23,948.

Following the announcement of its joining the VFEX, Seed Co’s share price soared. Indeed, Seed Co has had a very good 2023 so far, gaining 59% to ZWL 118.45 (EUR 0.34) since 1 January. That may sound promising, but investors should consider that trading in the share remains quite low. This, in turn, increases the risk of significant volatility in the stock.