Africa Funds Lower Even As Fed Fuels Rally.

Africa and some frontier-market funds are proving the risk-off trade today after the U.S. Federal Reserve said it won’t quickly raise interest rates.

Even the rise in oil prices today — up 1% to $60 for the international benchmark — is not helping the Global X Nigeria Index ETF (NGE), which is down 4.6%  in one of the worst performances among emerging and frontier funds.

The HSBC Frontier Markets (HSFAX) fund is down 2.3%, while the Forward Frontier Strategy Fund (FRONX) is down 1.8%. The Nile Pan Africa Fund (NAFAX) is down 0.6%. But the iShares MSCI Frontier Markets 100 Index Fund (FM) is flat and the iShares MSCI South Africa Index Fund (EZA) rose 4.2%.

Broader measures of emerging markets are rallying on the prospect that the cost of borrowing will rise modestly as expected. The iShares MSCI Emerging Markets ETF (EEM) is up 2.6%.

Nigeria is reliant on oil revenue, which is coming home to roost in this month’s presidential primary elections. The national election in February “appears to have swung away” from incumbent President Goodluck Jonathan, “but his defeat is not yet a forgone conclusion,” writes Manji Cheto at Teneo Intelligence. He writes:

“Following the conclusion of the presidential primaries election of the main opposition All Progressive Congress (APC) party on 11 December, the outcome of the forthcoming national elections – and specifically of the presidential election – is no longer a foregone conclusion … Despite concerns about his previously tainted public image as a ‘fundamentalist’, former military head of state Muhammadu Buhari emerged as the APC’s presidential flag bearer … The stakes remain very high on both sides, increasing the chances of post-poll violence (even if temporary). A Jonathan victory would likely result in the pro-Buhari camp questioning the credibility of the polls, possibly exacerbating an already precarious Boko Haram-related security situation in the north. Yet, Buhari’s own tainted image will also mean that a pro-Jonathan camp is likely to question any declared victory for the ex-military leader, with an attendant risk of resurging militancy in the oil-producing Niger Delta, where Jonathan still retains a considerable amount of support.
Beyond the elections, whichever government finds itself in power is likely to face a very difficult 2015. The most immediate challenges include tackling security challenges related to jihadist group Boko Haram, as well as economic headwinds associated with the bearish oil price environment. Government revenues have recently come under pressure amidst the oil price rout. Yet, public expectations for improvement in key areas such as security, electricity supply and youth unemployment are anticipated to outpace the government’s ability to respond to these challenges.”

Culled from Barrons.com
By Dimitra DeFotis.