African stocks markets are stepping out of the shadow of the developed worldSource: EQS
Market commentary of
African stocks markets are stepping out of the shadow of the developed world
Structural growth drivers and low valuations: As global monetary expansion comes to an end, the opportunity cost of owning African stocks has declined. Selected African markets are particularly well-positioned due to the underlying real economic growth and the forces of structural change.
Low potential returns, low market liquidity, at best an "exotic touch” for internationally diversified investment portfolios – most investors gave the African continent no more than a passing glance whenever major equity markets were booming. This was especially true in recent years when stocks in the developed world were clearly outperforming emerging market and frontier market stocks on the wings of ultra-loose monetary policy. Major central banks in the developed world really flooded the markets with cash after the outbreak of the coronavirus disease. Monetary and fiscal measures were ramped up to give the economy a boost. African countries were unable to take similar action on such a scale. This situation increased the opportunity cost of holding African stocks and explains why
This has gradually changed ever since 2021, when stock markets began to price in the end of expansionary monetary policy.
Two key performance drivers
From an investor viewpoint, the African continent’s biggest plus point is that it offers access to two major themes: commodities that correlate with global cycles, and compelling local and structural growth drivers that are uncorrelated to such cycles. Companies and countries heavily engaged in the commodities sector profited from the strong recovery in commodity prices after the outbreak of COVID-19 and they have been
We have tactically modified the fund's investment approach and increased our exposure to commodities to benefit from the stronger positive momentum, but without giving up our focus on structural growth drivers. Our exposure to the commodities sector is currently 50%, compared to 28% at the beginning of the coronavirus crisis. We proactively manage this exposure in tandem with the prevailing momentum of global commodity prices. Our commodity exposure has delivered 65% of the fund's performance over the past year and yet our commodity exposure is still well below that of our benchmark, the Dow Jones African Titans 50, which was 70% as of
Examples of structural growth
From a country perspective,
Commercial International Bank (COMI),
The two companies mentioned above are characteristic of our strategy of investing exclusively in liquid and marketable African stocks that are not exposed to any capital repatriation risks. Selected African markets currently offer outstanding risk-return profiles. Structural growth plays are trading at low valuations, particularly in
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