Namibian commentary After a disappointing 2018 year for asset class returns, 2019 has come out strong from the starting blocks. Other than the Namibian Equity and SA listed property all other Namibian and South African asset classes has been outperforming cash and inflation quite well so far this year. A nice change of pace where SA equity was down 14% and SA listed property down 31% during 2018. Which saw the fixed income asset classes, Namibian/SA and International bonds, only ones outperforming Namibian inflation and cash last year.

On the local bourse the NSX local Index posted a respectable first quarter with the index delivering a total return of 2.3%. Main share drivers for this return was Bidvest Namibia up 11% on the anticipated delisting price, Oryx up 4.4% and Capricorn Group up 4.3%, while FNB pulled back 4.9% for the quarter. The JSE ALSI delivered a total return of 8.0% for the quarter on the back of strong performance in the resources sector and making up almost all of the losses recorded for 2018, which was down 8.5% for the year.

Bonds continue on its strong return trajectory with the IJG ALBI index recording a return of 4.1% for the quarter, annualized return of 11.8% for the last 3 years and comfortably outperforming inflation with more than 6% over this period. Performance for the quarter is on the back of the South African Yield curve coming in slightly and in large part because of the Namibian spreads coming in very strongly as we see the 45% domestic holding requirements impact on the Namibian bond auctions. The first quarter of 2019 saw a bit of a roller coaster ride for the Namibian Dollar, again being impacted by a mixture of local and global events where we saw the currency improve all the way to 13.25 to the USD at the beginning of February and weaken back to 14.50 at the end of the quarter.

The Monetary Policy Committee of the bank of Namibia kept the policy rate unchanged at 6.75% at the scheduled meeting in February noting continued weak economy and sufficient international reserves. Rate is currently in-line with that of South Africa and has remained unchanged since August 2017.

GDP numbers continue to disappoint with the Namibian Statistics Agency reporting a contraction of 1.7% for the last quarter of 2018 which brings us to 3 years of worrying growth numbers, 1.1% for 2016, -0.9% for 2017 and -0.1% for 2018. The large detractors for 2018 was Wholesale and retail trade -7.2%, Construction -18.3%, while only real positive contributor being Mining sector which grew by 22%. The growth outlook for short term will remain subdued with the minister noting during his budget speech at best projection of 1.2% growth for 2019 and 2.2% for 2020.

During February Fitch revised our long term foreign currency credit rating outlook from stable to negative which means although they kept the rating at BB+ the next review could potentially mean a further de-rating.

2019 Namibian Budget

Government has been running a strong expansionary budget for a few years which has led to debt ballooning and requiring some serious fiscal constraint the last 3 years. Combined with 3 years of recession and limited scope to increase tax revenue means very little dry powder available now to implement much needed supportive policy measures by government. Budget of N$66.5bil tabled which is only a 2% increase from last year while underlying the operational portion has been cut by 1.8% and interest payments is racing above the 10% level to at 6.4bil per year. Revenue of 58.4bil expected which means a deficit of 8.1bil or 4.1% of GDP, in line with MTEF and recent years. Shows expenditure growth has been well maintained but coming out of 3 year recession and the outlook for next 2 years not being very rosy the balance between limiting debt growth/tax increases and having supporting policy is becoming extremely difficult.

Some interesting developments on the tax front with the Minister trying to widen the tax net with implementing 10% dividend withholding tax, trusts and charitable organizations taxed as companies, required declaration of all foreign income, VAT on sale of property companies and sugar no longer zero rated. While on the more supportive side the 40 000 allowable tax deduction for pension fund contributions has at last been raised to incentivize savings, deduction allowed up to maximum of 27.5% of income or 150 000.

Further pressure on the individuals pocket is the usual increase in sin taxes, another hike in fuel levy of 25 cents and new environmental levy on plastic bags and disposable batteries. PSEMAS members will also see their contribution double in April. While old age pension will only be increased with 4% to N$1 250. Overall the budget again does well in balancing fiscal discipline and improving on efficiencies but would the Namibian facing hard economic times and looming drought agree with this theme of budget.

Portfolio Positioning

We used the higher bond yields during the start of year to pick up the Namibian Bond exposure slightly during January, but overall still have a slight underweight positioning to Namibian bonds compared to the benchmark. We’ve also increased the exposure to dual listed shares during February and widened our overweight position to equities for the portfolio. Fund has been performing well against its benchmark being able to outperform the benchmark with more than 2% over 1 year and delivering a gross annualized return of 9.6% over the last 3 years.