Fund review

The Stanlib Namibia Money Market Fund size, closed off lower from N$ 976mil in the second quarter of 2018, to N$ 930mil at the end of the third quarter of 2018. As at the end of the quarter, money market rates closed lower, with 12 months Jibar linked notes trading around 103bps over 3month Jibar ,12 months NCD’s at 8.15% and 12 months Fixed Deposits at 8.25%. The fund is currently overweight Jibar linked instruments, with the rest of the holdings split across FD’s, NCD’s & TB’s. The current fund attributions matrix are as a result of the higher annualized returns generated by the Jibar linked notes relative to the rest of the assets in the fund.

Market overview

During the quarter under review, the Bank of Namibia left the Repo rate unchanged at 6.75% as part of their decisions to support domestic growth. The market remained cash flush from the beginning of the quarter, with a total market liquidity of around N$4 bn cash by the end of the quarter. The high liquidity volumes, resulted in money market rates moving lower as banks have no incentive to price higher in the short term up to 12months. The Namibian inflation rate has since been moved slightly higher to average 4.1% from 4%, due to higher oil prices and the domestic currency’s response to the weakness in the Rand movements.
Looking ahead

While the market expects rates to remain unchanged for the remainder of year, the increased levels of trade protectionism as well as the impact of monetary policy normalisation in developed markets, remain key drivers to the global outlook. The monetary decisions in SA will continue to have an impact on Namibia rates, while local liquidity needs will continue to drive the premiums offered for local assets.

Fund Review
The quarter under review experienced low levels of bank liquidity averaging around N$ 2 billion, with the lowest level recorded at N $ 875 million. These levels incited banks to show attractive rates throughout the yield curves, both on fixed instruments and floating rate spreads. During the periods of low bank liquidity rates were quoted at 8.50 % in the twelve-month space and spreads above JIBAR in the range of 1.45%. As expectations are for a rate cut by Bank of Namibia during the 2nd quarter, maturing instruments were reinvested at the far end of the curve, resulting in duration increase. Although strategy was to be overweight fixed deposit, we still saw value in floating rate instruments depending on the spread offered by liquidity short banks. While during the last quarter of 2017 treasury bill yields were more attractive than Banking yields, the quarter under review saw treasury bill yields dwindle against Bank rates thus making them less attractive. Although money market yields priced in a rate cut the portfolio still outperformed the bench mark by 1.81 basis points with one year gross returns of 8.69 % against bench mark returns of 6.88 %.

Market review
The IMF revised global GDP growth upwards by 0.2 % for 2018 and 3.9 % for 2019. GDP growth remains weak in Namibia, with annual inflation decreased slightly to 3.5% y/y in February following the 3.6% y/y increase in prices recorded in January. This is below the South African annual rate of inflation that fell to 4.0% from 4.4%y/y in January 2018 and therefore leaves room for Bank of Namibia to cut rates to stimulate the economy. South Africa cut its repo rate by 25bps on the 28th of March 2018 on the back of low inflation, a favorable currency and positive review from Moody’s, rating the economy to stable from negative. Namibian economist’s expectation is that Bank of Namibia will follow suit by also cutting by 25bps.

Going Forward
Our rate expectation has changed to a rate cut, both in Namibia and South Africa, thus altering our portfolio strategy to having a longer duration and being overweight fixed instruments. Although the strategy is to be overweight fixed deposit, we still see value in floating rate instruments depending on the spread offered by liquidity short banks.