Senior Fellow and Vice President for Programs Todd Moss and co-author Ross Thuotte's recent working paper is quoted in a Barron's piece on why African markets remain the best place to invest.
According to a recent working paper by Todd Moss and Ross Thuotte, the best place to find uncorrelated returns remains sub-Saharan Africa (not including South Africa). They note that:
The majority of emerging markets have become increasingly correlated with US and European benchmarks over the course of the past two decades. Over this period, Latin American and Asian markets on average exhibited strengthening correlations with the S&P 500 and other major benchmark indices.2 For instance, correlation between Asian markets and the S&P 500 has risen from roughly zero in 1992 to 0.79 in 2010. Similarly in Latin America, regional markets’ correlation with the S&P 500 rose from 0.15 in 1992 to 0.86 in 2010.
Sub-Saharan Africa however looks much better, they write.
By contrast, the equity markets of sub-Saharan Africa (SSA) have exhibited consistently low correlation to US and European performance. SSA markets (excluding South Africa’s JSE) exhibited a weak (albeit slowly strengthening) positive correlation of just 0.22 with the S&P 500 over the past five years. In 2010, this figure increased only incrementally to 0.31.
The biggest problem: Implementation. “Several features unique to African equity markets can act as constraints for investors seeking to take advantage of any potential benefits derived from low market correlation,” Ross and Thuotte say. Perhaps the reason they remain uncorrelated?
The Guggenheim Frontier Markets ETF (FRN), which includes a dollop of sub-Saharan African nations has dropped 7.6% this year, while Global X Nigeria Index ETF (NGE), which launched less than a month ago, dropped 2.1% last week.