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Africa Equity Opportunities Fund - September 2018

Since the inception of the MSCI Africa excluding South Africa index, African equities have outperformed most markets or groupings, including developed, emerging and frontier markets and with similar volatility to the S&P 500 and the MSCI World index.


  • African market weakness was driven by Kenya (-3.5%), Morocco (-1.8%) and Nigeria (-7.7%). Weakness in Kenya was driven by the banking sector which was down 6.1% and East African Breweries which was down 11.7%. The Fund’s weakness in Morocco and Nigeria was more general. Egypt was up 2.8%, counteracting the weakness to a certain extent. This performance was driven by Commercial International Bank which was up 4.6% in the month and makes up 13.5% of the Index.
  • The Fund underperformed in Egypt (-0.3%) due to its underweight Commercial International Bank and overweight consumers position. In Kenya (-2.7%), the Fund outperformed the index due to its underweight position and stock picking. The Fund underperformed in Nigeria (-9.2%) where it is overweight in Oil and Gas (-8.7%) as Seplat Petroleum fell 7.7% and Lekoil was down 11.1%.

Fund activity

With generally weaker markets, the Fund’s investments have held up relatively well. With no shares rallying strongly towards our fair values, very little change has been made to the portfolio. The Fund still has its largest exposure to Egypt, while Morocco remains the Fund’s largest underweight as we view the market as expensive.


How has Africa fared in the Emerging market volatility?

As we have shown before, and contrary to many investors expectations, African markets are significantly less volatile than many other equity proxies. In the graph below we have updated a chart we have shown before, which shows US dollar equity returns and volatilities using weekly returns from 2 June 2002 to 5 September 2018 (this is the longest period we have for the MSCI Africa excluding South Africa index).


Source: Bloomberg, Ashburton Investments

Over this long-term period African equities have outperformed most markets or groupings, including developed, emerging and frontier markets and with similar volatility to the S&P 500 and the MSCI World index.

There are many reasons for this low volatility. One is that the returns include a grouping of different markets that have low correlations. The economic growth drivers of the underlying economies in these markets can differ, as for example some of these are net oil exporters, while others are net oil importers. This factor made a significant difference over the period we are looking at, as oil prices rose as oil prices rose from around $20/bbl to over $100/bbl before declining to below $30/bbl and have now risen again to about $75/bbl again.  We know that the correlation to global markets is particularly low (correlation co-efficient of between 0.20 and 0.30).  We ascribe this to the fact that many of these economies are reforming and therefore not that reliant on global events and growth for their individual economic growth.

Despite this, investors might be concerned that in the current climate where there is a “risk-off” environment and appetite for emerging markets is weak, African returns could be particularly poor and volatility could increase substantially. 


Source: Bloomberg, Ashburton Investments

Although US equities and therefore developed market equities have been strong performers this year, most other equities have been weak.  Africa excluding South Africa has outperformed emerging and frontier markets over the period.  Volatility for Africa and all the other markets in the graph decreased, except for South Africa.

Despite these difficult conditions, African equity markets have probably held up better than most investors expect.


With equity markets in Africa only just recovering to levels of five years ago, but growth continuing for many of the underlying businesses over that period, there is clearly impetus for significant future returns through active management and stock selection. Lower interest rates should provide further support for valuations, although central banks are being cautious for now. This will be positive for equity markets that will also start anticipating the generally improved economic outlook for the continent in 2018 and beyond.