Mind the (Bullish) Gap: Mean Reversion Likely for African Stocks

Greg Barker of the Mauritius-based Sustainable Capital has just penned another insightful article on the value of African stocks.

In it, he shows how African stock markets (excluding the Johannesburg Stock Exchange) have fallen well below their normal valuation in relation to other world markets over the past four years.

Since 2009, emerging market stocks have notched a 95.2% return compared to African ex-SA stocks’ 23.9% performance.

To Barker, this suggests a reversion to the mean is on its way. He believes the market performances will return to their normal parity much like a rubber band does after being stretched.

Photo by Buh Snarf

If they were to revert to their mean, the performance gap between emerging market and African stocks would narrow by 18%.

The chasm between South African and non-South African stocks is even wider. To return to normal averages, these stocks would need to outperform their Jo-burg listed counterparts by 400 basis points.

Mean reversion doesn’t necessarily mean African markets will post eye-popping returns. Emerging markets could see their valuations drop. But if Barker’s theory holds, there should be safety in markets like Nigeria and Kenya, if not substantial capital appreciation.

You can read the entire article here.

Related Article:

Hitch Your Portfolio to Africa’s Demographic Freight Train

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