Emerging markets, particularly in Africa, are experiencing a remarkable resurgence, showcasing significant growth in stocks, bonds, and currencies. This revival is attributed to a combination of record metals prices, a weaker US dollar, and extensive economic and currency reforms enacted across the continent. Notably, South African, Nigerian, Kenyan, and Moroccan stocks have shown returns of at least 40% this year in US dollar terms, surpassing the 31% gain of the MSCI emerging-market share gauge, which is experiencing its strongest period since 2017.
The MSCI benchmark’s market value has surged by $5 trillion this year, now totaling $26 trillion, primarily driven by Asian chipmakers and technology shares amidst a global enthusiasm for artificial intelligence stocks. However, the rising concentration of investments in these sectors has prompted calls from investors to diversify into markets that have remained largely overlooked over the past decade. These markets offer traditional emerging-market exposure via commodities, consumer goods, and banking stocks.
James Johnstone, co-head of emerging and frontier markets at Redwheel, remarked on a “new dawn for Africa,” attributing the region’s economic uplift to robust commodity prices and the resolution of a series of defaults and devaluations that plagued many nations since 2022. Johnstone emphasized the importance of diversifying into tangible assets, such as African commodity stocks, as an increasing number of investors favor real assets over digital investments.
Interestingly, the most significant gains have been noted in smaller African markets that faced severe economic challenges just a few years prior, grappling with issues like runaway inflation. For instance, Ghana’s and Zambia’s stock markets have more than doubled in US dollar terms as prices for gold and copper, their primary exports, have soared this year. This recovery comes as both nations emerge from periods of debt defaults earlier in the decade.
Farouk Miah, an investment manager at All Africa Partners based in London, noted that global investors are recognizing the positive outcomes of the necessary reforms being implemented within these markets, which translate to stable foreign exchange rates and improving equity performance. The Ghanaian cedi, Zambian kwacha, and Congolese franc have appreciated by 25% to 33% against the dollar this year, ranking just behind the Russian rouble globally. Additionally, Zambia’s annual inflation has declined to its lowest level in over two years, hovering just below 12%, while Ghana’s inflation rate has entered single digits.
The Nigerian naira, which witnessed drastic fluctuations last year, has shown stability for more than a year after undergoing two significant devaluations that previously diminished its value by over 70% against the dollar. Meanwhile, African governments’ dollar debts have rallied, with most now yielding less than 10%, making new borrowing increasingly difficult. Kenya and Angola have recently issued bonds to refinance debts that seemed unmanageable just a year ago.
On a separate note, Senegal is facing a complex situation regarding its bonds, as the nation is engaged in discussions with the International Monetary Fund following the revelation of a hidden loan scandal, leading to bond yields around 13%. Conversely, domestic government bonds from South Africa and Nigeria have outperformed the 16% growth seen in a JPMorgan index of local currency emerging-market debt this year.
In a significant development, South Africa and Nigeria were removed from the Financial Action Task Force’s so-called “grey list” of countries with inadequate anti-money laundering measures, providing further relief for banks and investors amidst ongoing structural reforms. The yield on South Africa’s 10-year rand debt has decreased from over 11% during April’s tariff panic to less than 9%, marking the lowest level since 2018. This decline has contributed to investor confidence that the central bank will eventually succeed in driving down the official inflation target.
While historical trends indicate that African stock markets often saw expansive growth during commodity booms, only to recede afterward, experts like Johnstone caution that despite this year’s positive trend, the number of global funds dedicated to African markets has declined in recent years. Johnstone highlights that a substantial portion of this year’s market activity has been led by local investors who are reallocating funds from high-yielding domestic bonds into equities like undervalued banks. According to him, while stock markets have experienced dramatic rises, they remain significantly undervalued and under-owned by global investors.
