The Allan Gray Africa ex-SA Equity Fund has benefited from strong performance across several of its holdings this year. Kamal Govan explains what has driven these returns and why it is important to view the performance of African equities in a broader global context.
The Africa ex-SA Fund is up 29.3% year to date. Over the same period, it has outperformed its benchmark, the MSCI Emerging Frontier Markets Africa ex-SA Index, which returned 7.5%. It has also outperformed the MSCI World Index and the MSCI Emerging Markets Index, which returned 11.7% and 21.3%, respectively.
Global risk appetite remained firm through the quarter, underpinned by an unusually strong US earnings season. For the 2026 calendar year, analysts are predicting 32% earnings growth for the S&P 500, up from a forecast of 15% at the start of the year. The upgrade cycle is heavily concentrated on energy, technology and the broader AI infrastructure buildout. This backdrop coincides with a notably more hawkish tone from the US Federal Reserve. Under new chair Kevin Warsh, the median policy projection now points to at least one further interest rate hike by year-end, a marked shift from the easing path expected earlier in the year. Despite this, equity markets have continued to grind higher.
It is worth placing African equity performance against the global context. The Nigerian stock market has been one of the best-performing equity markets in the world this year, with the NGX All Share Index returning 78.7% year to date, a return that puts it in the same conversation as South Korea's Korea Composite Stock Price Index (KOSPI), which has delivered a 70.3% return over the same period. The comparison is instructive precisely because the drivers are so different. KOSPI’s advance has been narrow and thematic, concentrated in two memory chip companies. Samsung Electronics and SK Hynix account for roughly half the index and are riding the AI-linked demand supercycle. In contrast, Nigeria's rally has been broad-based, spanning banks, oil and gas, telecommunications and industrial goods. Said differently, Nigeria’s rally is underpinned by broader fundamentals rather than a single narrative. These include stronger corporate earnings, the completion of bank recapitalisations, a more market-determined exchange rate and improving macro credibility ahead of the 2027 general elections. Furthermore, FTSE Russell upgraded Nigeria back to frontier market status in September, three years after downgrading the market to unclassified status over foreign exchange repatriation concerns. The FTSE Russell upgrade could provide a further catalyst through increased foreign participation and improved liquidity.
So far this year, the Fund’s performance has been broad-based. In Nigeria, Seplat Energy, our main oil and gas industry exposure, delivered stellar returns on the back of a favourable macro backdrop and solid operational performance. Our exposure to Nigerian banks, which as previously highlighted is concentrated in the better-quality banks, has also delivered solid performance on the back of strong earnings momentum and the market’s rerating of those earnings. Perhaps most pleasing of all has been the continuation of strong fundamental performance from Zimbabwean beverage manufacturer Delta Corporation, where volumes and US dollar profitability continue to reach new highs. By contrast, platinum group metals (PGM) miner Zimplats’ performance has disappointed despite a stronger PGM market due to mixed operational performance. We believe that these challenges are most likely temporary in nature.
Shares listed on the Zimbabwe Stock Exchange (ZSE) are now valued at their quoted market prices, converted into US dollars at the official exchange rate. Previously, we valued these shares at the lower end of our conservative estimate of fair value or the market price. This change only affects Delta Corporation as the Fund’s sole holding listed on the ZSE.
Looking beyond recent performance
We continue to view the African investment universe as offering compelling relative value compared to global equity markets. However, performance, especially on a relative basis, does not come in a straight line, and we caution that current levels of performance are exceptional and not necessarily sustainable over the long term.