African Stocks Outpace Emergent Peers

LONDON -- Emerging markets from Asia to Latin America got a rude awakening earlier this year when investors withdrew money on fears of a global economic slowdown.

Markets across Africa, though, are showing some of the best returns of the year, outperforming the benchmark MSCI Emerging Market Index of global emerging-market stocks, amid their relative isolation from global capital flows and economic growth.

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While the MSCI index fell 11% in May, however, two of Africa's most-promising sub-Saharan markets, Kenya and Nigeria -- which have both more than doubled in size in U.S. dollar terms during the past three years -- rose 6.5% and 5.6% respectively, according to Investec Asset Management.

Kenya's Nairobi Stock Exchange has seen its NSE 20 share index rise 20% in U.S. dollar terms from January through September while Nigeria's All Share Index is up 40%, according to Liquid Africa, a financial-services company based in South Africa that tracks 19 African stock exchanges on its Web site.

Indeed, the continent's so-called frontier markets, such as Nigeria, Kenya, Ghana, Mauritius and Botswana, are up an average of 26% so far this year in dollar terms, according to Liquid Africa. By comparison, the MSCI Emerging Market Index, which includes just three African countries -- South Africa, Egypt and Morocco -- has risen 9.5% during the same period.

Most of the markets are tiny, often with stock-market capitalizations of less than $3 billion, and most stocks are illiquid. Although there are few restrictions to foreign investment, few mutual funds in the U.S. and Europe invest in them. Total market capitalization across the continent's major markets totaled $791.7 billion in August according to Liquid Africa -- around a fifth of the size of the London Stock Exchange. South Africa is by far the dominant market with $527 billion capitalization.