Local currencies: the main driver of investment success for African equity investors?
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Currency returns play a decisive role for US$-funded investors into African equities. To highlight some examples, the annualized total return for the FTSE/JSE Africa All Share Index during the last five years in South African Rand is 13.5%, while the US$ return for the same period is 4.1%. A benchmark index for Egypt, the EGX30, has delivered an annualized total return of 26.7% in Egyptian Pounds during the same period, but in US$, this impressive return shrinks to a meagre 1.8%. Same story for Nigeria, where the Nigerian Stock Exchange Main Board Index has returned a negative annualized return of -3.6% in US$ for the last five years, while local equity investors have enjoyed a healthy 10.4%, despite a balance-of-payment crisis and the first recession since 1991. It doesn’t matter if we are comparing annualized returns in local currencies and US$ for various 10- to 20-year periods – a negative currency attribution of 5% to 10% on a yearly basis seems to be almost a rule for most African equity markets.