Currencies slide in east Africa as investors exit
IT SEEMS like just yesterday that Facebook went public. Now its market value has topped $250 billion (R3 trillion).
The social network company’s 2.4 percent climb to a record close on Monday made it the first company in the Standard & Poor’s (S&P) 500 index to breach that market cap so quickly. The previous record holder was Google, which took about eight years.
Facebook’s rapid ascent may indicate investor confidence that the company will continue to increase mobileadvertising sales on its application and others.
To some degree, the gain also reflects froth in tech stocks; the Nasdaq internet index has almost doubled since Facebook went public. The company’s shares trade at 87 times earnings, almost five times the average in the S&P 500. Companies in the Nasdaq internet index trade at a priceearnings ratio of 27.
“When you see stocks with these high multiples, it shows you the market’s comfort in the longer-term growth story,” said Paul Sweeney, an analyst at Bloomberg Intelligence.
“Investors think Facebook is more valuable than the average Nasdaq stock.”
The company’s quick rise to $90.10 a share on Monday is even more remarkable because the stock lost more than half its value in the four months after its initial public offering (IPO) in May 2012.
Facebook had a market value of $104.2bn at its IPO, so the company did not have to climb as far as some other firms did to reach $250bn.
With a market value of $253bn, Facebook is now the ninth-biggest company in the S&P 500 – bigger than WalMart Stores and Procter & Gamble, which took decades to grow as valuable.
Facebook’s revenue from advertising rose 46 percent to $3.3bn in the first quarter from a year earlier.
Facebook’s revenue from advertising – from which the company gets more than 90 percent of its sales – rose 46 percent to $3.32bn in the first quarter from a year earlier. More than two-thirds of that came from mobile ad sales.
Analysts estimate that sales rose 37 percent in the second quarter, according to data compiled by Bloomberg.
Longer-term, the company plans to serve ads on other applications and websites and to make money from its rapidly growing Instagram, WhatsApp and Messenger apps. Facebook also is betting on its $2bn purchase last year of Oculus VR. – Bloomberg EAST African central banks are having little success in stemming a rout in their currencies despite aggressive monetary policy action.
The Bank of Uganda raised its benchmark interest rate by 150 basis points on Monday, the third increase this year. That follows the decision by the Central Bank of Kenya to lift its rate by a total of 300 basis points in two meetings in a row.
Uganda, Kenya and Tanzania are among the worst hit currencies in Africa this year as heightened risk aversion prompts investors to move money out of emerging markets. As import-dependent economies, the east African nations are exposed to foreignexchange reversals, while dwindling reserves mean policymakers have little ammunition to halt the decline.
External factors
“Domestic policy will have very little impact on the currencies,” said Aly-Khan Satchu, the chief executive of Rich Management, an adviser to wealthy individuals and companies. “It’s a strong-dollar story, a risk-aversion story.”
The Kenyan shilling has weakened 8.8 percent against the dollar in the past three months, Uganda’s currency has dropped 9.1 percent and Tanzania’s unit is down 8.4 percent. Only the Angolan kwanza is a worse performer in Africa in the period after slumping 12.8 percent against the dollar.
Inflation in Kenya accelerated to 7 percent last month, close to the upper limit of the central bank’s 2.5 percent to 7.5 percent target range. In Uganda consumer price inflation was 4.9 percent last month.
Wide deficits on the current account and budget in Kenya and Uganda are worrying investors. Kenya’s government forecast an 8.7 percent fiscal gap for the year that began July 1, while Uganda widened its shortfall to 7 percent this year from 4.5 percent last year.
“The region is seen as vulnerable to a change in external conditions because of its sizeable twin deficits,” Standard Chartered economist Razia Khan said. “It will take strong policy resolve on the part of east African central banks to turn this around.”
It will take strong policy resolve on the part of east African central banks to turn this around.
While Kenya and Uganda had been pumping dollars into the market to support their currencies, the strategy was unsustainable and risked depleting reserves, Satchu said.
Uganda’s reserves dropped by 17 percent to $2.8 billion (R34.6bn) in May from a year ago, while Kenya reserves fell 9.8 percent to $6.6bn since the beginning of the year to July 9.
“I expect further weakness in Kenya and Uganda units because the central banks are running out of ammunition and the dollar rally has still further to run,” Satchu said.
“We believe policy tightening will slow the shilling depreciation, but it will not halt it because weak exports, growing imports and a slowdown in financial inflows will weigh on the currency,” Renaissance Capital economist Yvonne Mhango said. – Bloomberg