Mauritius outperforms African frontier equities

* SEMDEX gains 90 pct since March 2 trough

* Banks show good value, hotels volatile

By Richard Lough

ANTANANARIVO, Oct 19 (Reuters) - Mauritius's benchmark SEMDEX index .MDEX hit a 61-week high on Monday, outperforming other small regional emerging markets since it bottomed out in March, and is likely to continue adding value, said traders.

The index closed at 1,743.30 points, up more than 90 percent from its March 2 low of 916.83 points.

"Mauritius has been among the strongest performing bourses in sub-Saharan Africa this year, along with South Africa," Roelof Horne, portfolio manager for Africa funds at Investec Asset management, told Reuters

"I don't think it's terribly expensive but it's not terribly cheap either," he added.

In comparison, Africa's frontier equity index .dMI8600000P, which excludes South Africa, has gained 43.6 percent since a Feb. 3 low of 458.773 points, lagging behind the MSCI emerging market index .MSCIEF, which has more than doubled since early March.

At the start of 2009, traders on the palm-fringed Indian Ocean island forecast a grim outlook. But market players have continued to revise their forecasts upwards as renewed confidence and improved liquidity help the nation's banks and hotels drive the Port Louis bourse, valued at about $5 billion.

Analysts say Mauritius Commercial Bank MCBL.MZ -- which accounts for 23 percent of total market capitalisation -- and State Bank of Mauritius SBML.MZ continue to show value for investors, with price-earnings ratios hovering in the high single figures and low tens.

BANKS SOLID, HOTELS VOLATILE

"(Their) non-performing loans have continued to come down, their balance sheets remain pretty liquid and loan growth is still in positive territory," London-based Andrew Brudenell, portfolio manager of HSBC's $118.6 million New Frontiers Fund, including a $33.4 million segregated mandate, told Reuters.

However, with the shape of economic recovery in Mauritius's core European tourism markets still uncertain, the medium-term outlook for luxury hotel groups such as New Mauritius Hotels NMH.MZ (NMH), Naiade Resorts NRL.MZ and Sun Resorts SUNR.MZ is less visible.

"Hotels are proving the biggest risk to market volatility," said Vikash Tulsidas, manager of Axys Stockbroking in Mauritius.

Multiples in the hotel sector are likely to remain stretched, possibly for the next 18 months, analysts forecast, while earnings respond.