|
|
|
Fourth Quarter Highlights |
- The
fall in the Namibian economy was muted
in 2010 despite heavy reliance on
commodity exports.
- The
Namibian stock index (NSX) closed higher
in 2010.
- NSX
saw four new listings in 2009 of which
three were uranium exploration
companies.
- GDP
growth is expected to rebound in 2010
driven by the mining sector.
…while interest rates remain on hold and
inflation continues to be muted in the
short-term.
|
|
Tebogo Dintwe
Economist |
|
Although global economic conditions
remained weak, the decline in
Namibia’s economy was muted in 2009
despite its heavy reliance on
commodity exports. And there were
reasons to celebrate: Namdeb resumed
on-shore mining operations in the
second quarter after a “production
holiday”; there were four new NSX
listings, three of which were
uranium exploration companies; and
SABMiller was granted a licence in
September to brew and bottle beer.
The local economy in the fourth
quarter was mainly supported by
recovering global demand and the
construction sector. For 2009 as a
whole, the mining sector (which
makes a significant contribution to
GDP) fell by an estimated 48.3% due
to declining diamond production.
However, the decline in mining was
partially offset by growth in
construction, finance, real estate,
manufacturing and government
spending. The Bank of Namibia (BoN)
estimates that the domestic economy
fell 1% in 2009 after rising 3.3% in
2008.
Inflationary pressures subsided,
with CPI inflation moderating from
11.6% y/y at the beginning of the
year to 7% y/y in December. Despite
this, consumer spending remained
under pressure as real income
declined and unemployment remained
high. This was evidenced by weak
vehicle sales and flat private
sector credit growth for most of the
year. Slowing inflation and weak
economic conditions resulted in the
BoN cutting interest rates by a
total of 300 basis points to 7% by
year-end. |
|
|
|
Market overview |
|
The NSX Overall Index rose 17.9% in
the final quarter, closely tracking
the strong performance of South
Africa’s FTSE/ASLI (up 11%) and
other emerging economies’ equity
markets. Equity markets in general
performed impressively during the
quarter in response to improving
economic data and increasing risk
appetite. However, the NSX Local
Index remained flat at 0.1% after
falling 3% in the third quarter.
This clearly indicates that the
Namibian equity market for the
quarter was driven mainly by
dual-listed companies. |
|
|
On a return basis, the Local Index
gained 1.6% (3.1% in US$ terms) in
the fourth quarter, after falling by
1.7% (0.5%) in the previous period.
The Overall Index returned 17.9%
(19.6%)in the fourth quarter from
11.9% (14.4%) previously. For the 12
months, the Overall Index returned
43.21%, outperforming SA equity
markets, which returned 32%, while
the Local Index returned 3.55%.
The best-performing sector for the
quarter was Basic Materials (mostly
mining shares), which increased
31.5%, followed by consumer goods
(up 14.1%). The worst-performing
sector, and the only one to perform
negatively, was Industrials, which
declined 8.3% after being the top
performer in the third quarter.
|
|
The IJG Bond Index increased in line
with the SA bond index as Namibia is
part of the Common Monetary Union.
Namibian bond premiums relative to
the SA yield were mixed compared
with the previous quarter, when all
Namibian bond premiums decreased
relative to SA yields. Over 12
months, the IJG Bond Index was up
3.31% and gained 1.9% for the
quarter, thus underperforming equity
markets. Interest rates are expected
to remain flat for much of 2010,
although inflation is expected to
start edging higher in the medium
term, which may put negative
pressure on bond yields.
The IJG Money Market Index gained
8.19% over 12 months and 1.8% for
the quarter. With domestic inflation
expected to rise, a cycle of rate
increases is expected. This should
be positive for the money market as
better real yields should
materialise, increasing the relative
attractiveness of money market
instruments. |
|
|
Outlook
Economic recovery is likely to take
hold in 2010 in line with improved
global economic activity. IJG
projects GDP growth to rebound to
4.9% (after declining 1% in 2009),
while the BoN projects 4.2% as the
economy is driven by increased
commodity exports such as diamonds,
uranium, zinc and copper due to
recovering global demand and rising
commodity prices. However, the BoN
has highlighted that increased
unemployment, a skills shortage and
uncertainty about the sustainability
of global recovery, all pose
downside risks to the country’s
conomic growth. The low interest
rate environment and the recovering
economy will likely boost consumer
demand, although inflation risks
remain. Food inflation and high
administered prices (especially
electricity) are likely to exert
inflationary pressures in the
economy. Thus, interest rates are
expected to remain on hold, with the
rate increase cycle resuming in the
third quarter due to upside risks to
inflation.
The Namibian dollar will continue to
track the South African rand as the
currencies are pegged at the same
value. For most of 2009, the rand
remained strong (appreciating about
20%), benefiting from the weaker
dollar and improved risk appetite
for emerging markets. Investment
Solutions expects the rand to remain
strong against the dollar, believing
it will continue to benefit from
declining risk aversion and strong
commodity prices as the global
economy emerges from recession.
However, a sell-off in global
markets would be negative for the
rand, and hence for the Namibian
dollar.
The performance of local financial
markets may be largely dictated by
the external investment environment.
Better long-term growth prospects
and the offer of at least some yield
means Namibia may continue to
experience inward investment capital
flows, which will be constructive
for its equity markets. |
|
|
|
|
|
|
|
|
|
©
Investment Solutions Limited, 2010 |
