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African Stocks May Be Poised to Overtake US Equities in 2024

Published 2024-08-14, 07:26 a/m
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Betting against the US stock market has been a losing trade in relative terms in recent years and from a top-down down perspective it’s not obvious that’s about to change. But carving up the global market into regional slices highlights a rally in African stocks that may be set to give US shares a run for their money, based on a set of ETFs.

American stocks are still the year-to-date leader so far in 2024 via S&P 500 (NYSE:SPY), but VanEck Africa (NYSE:AFK) is nipping at its heels. SPY closed on Tuesday (Aug. 13) with a 14.8% gain so far this year, which is only modestly ahead of AFK’s 13.8% rally. On both counts, the gains are comfortably ahead of a global equities benchmark, based on Vanguard Total World Stock Index Fund (NYSE:VT), which is up 10.6%.World Regional Equity Markets YTD Returns

AFK’s effort to grab the performance crown this year marks a stunning recovery for the formerly sinking fund. In 2023, AFK lost more than 12%, which translates to a steep run of underperformance vs. SPY’s stellar 26% rally last year.

AFK, despite its pan-African mandate, is heavily weighted in South African stocks, which comprise roughly 40% of assets, according to Van Eck. From a sector allocation perspective, financials and materials dominate with a roughly 60% weight. The fund, in short, offers a particular bet on the continent’s shares. But so far this year, that bet is paying off, fueled by the recent tailwind in South Africa stocks.SPY-Daily Chart

What accounts for the change in sentiment? A weaker US dollar helps. All else equal, a softer greenback supports prices for offshore assets generally after translating foreign currencies into dollars. Although the US Dollar Index is up about 1.4% this year, it’s well below its 2024 and roughly 10% below its 2022 peak.

Another positive factor is the return of relative political stability in South Africa after elections six weeks ago. JPMorgan (NYSE:JPM) recently upgraded South Africa to “overweight”, predicting that investment will increase now that a degree of political calm has arrived.

Bloomberg reports: “South Africa’s new business-friendly coalition government signaled that its foreign policy will be focused on furthering the nation’s economic interests, a shift that could help mend rifts with Western countries that rank among its largest trading partners.”

The revival of leadership of foreign stocks over American shares has been a hardy perennial for some strategists in recent years, but so far the forecast has fallen flat. But if a regime shift is brewing, perhaps it will begin with leadership in Africa.

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