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Africa Opportunity hit by commodity price falls

Africa Opportunity Fund’s results for 2014 show its net asset value fell by 17% over the year. Its C shares (it raised more cash in April 2014) saw their net asset value fall by 9% by the end of the year. The C share money is some way off being invested. As at 31 December 2014, AOF’s investment allocation for its Ordinary shares was 76% equities, 20% debt and 4% cash and for its C shares was 40% equities, 14% debt and 46% cash. African markets delivered mixed returns; South Africa rose 1%, Nigeria fell 24%, Kenya rose 17%, and Egypt rose 20%. Ghana, their biggest exposure, had a difficult year with a 17% fall in its GDP.

The manager says the decelerating Chinese economy, the end of the US Fed’s QE program, and displays of fiscal profligacy by some African governments undermined the living standards of African consumers, reduced the profitability of the African corporate sector, and lowered the external value of most African currencies. For example, the Ghanaian Cedi fell by 26%; the Zambian Kwacha by 14%; the Nigerian Naira by 13%; the CFA Franc by 11% and the Moroccan Dirham by 10%. They were also invested in a number of companies that were operating in countries hit by falling commodity prices; the manager mentions Enterprise Group in Ghana Copperbelt Energy in Zambia, Continental Reinsurance in Nigeria, and Sonatel in Mali and Guinea. Copperbelt Energy they think is interesting because it has been investing heavily in Nigeria (doing things like constructing a hydroelectric dam to power its operations) yet the manger believes the market attributes no value to this investment. Commodity producers such as Zimplats and Societe de Caoutchoucs de Grand-Bereby have been hit hard. They think that, in retrospect, they had too much exposure to bonds issued by Tizir (a company producing titanium and zircon). they did do well out of Pallinghurst however – this company produces emeralds and rubies, manganese, and platinum in Zambia and Mozambique (it also owns Faberge!).

AOF is still embroiled in a legal dispute with Shoprite (According to Shoprite, 438,743 of AOF’s shares, representing 10% of the year-end net asset value of the A shares, were acquired in allegedly unauthorised trades in Shoprite shares.  AOF bought shares on the Lusaka Stock Exchange via open market purchases only to learn later that some of the shares sold were allegedly treasury shares of Shoprite and allegedly sold in breach of Shoprite’s mandate to its transfer agent.  As a result, Shoprite argues that valid title did not transfer to the Fund). Shoprite have been refusing to acknowledges AOF’s ownership of its shares and to pay them dividends. The dispute is going to arbitration in South Africa.

AOF : Africa Opportunity hit by commodity price falls

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