Global stock markets had a good start to the New Year with risk appetite buoyed by a series of positive data releases from the US on employment, industrial production and consumer sentiment. There was further encouragement from China which delivered GDP growth figures supportive of the view that a soft rather than a hard landing is unfolding in the economy. The net result was that the S&P 500 index increased 4.4% over the month.

In Africa, the stand-out performance was Egypt which increased by 28.3% over the month, making it among the best performing stock market in the world in January. Sentiment boosted by developments on the political front with the newly elected parliament meeting for the first time and demonstrations marking the first anniversary of the uprising passing off peacefully in Cairo. Elsewhere in Africa, stock markets were generally positive with South Africa and Morocco up 5.6% and 1.7% respectively in January while Nigeria and Kenya were broadly flat.

Since the start of the year there have been encouraging moves by several governments in sub-Saharan Africa to deregulate their economies, most notably in Nigeria, which successfully pushed through a very controversial reduction on the subsidy on petrol. Subsidies are inefficient, prone to corruption and divert expenditure from more productive expenditure such as infrastructure. They are also expensive, with Nigeria’s fuel subsidy costing an estimated US$8bn in 2011, more than the combined spending on education, healthcare, power and agriculture. However, this month the Nigerian government announced that the fuel subsidy would be scrapped resulting in the price of petrol more than doubling to NGN140/litre (equivalent to around US$0.90). Unsurprisingly the increase met with strong resistance locally with widespread protests and trade unions demanding the full subsidy be reinstated. After several days of discussions a compromise was reached with a partial reinstatement resulting in a petrol price rise of 50%. Successive Nigerian governments have in the past tried and failed to reduce the amount of the fuel subsidy so, as well as the significant positive effects for Nigeria’s budget, the fact that the President Jonathan’s administration did not fully cave in to union demands also sets a very encouraging precedent for further deregulation of the Nigerian energy sector.

Within the portfolio the majority of the top ten holdings were in positive territory. Egyptian stocks benefited from the strong rise in the Egyptian stock market with, for example, Orascom Construction Industries and Commercial International Bank both increasing by over 20% over the month however the most significant mover was Nigerian energy stock Afren. The stock initially rose early in the month on better than expected production figures at their Ebok field located offshore south-east Nigeria and performance was subsequently boosted by a significant new oil discovery at their Okoro East exploration well. The combined effects resulted in a price increase of 40.6% over the month (all performance in local terms).