I talk a lot about the rewards of investing in African stocks. And it’s (in my entirely biased opinion) with very good reason.
Most of the African stock markets outperformed the S&P500 quite handily over the past five years and appear bargain-priced for the next five.
But astute investors consider the risks when assessing these potential returns. Currencies can depreciate. Political crises can erupt. Commodities can nose-dive. Stuff like this can make the price charts of some African indexes look like something out of The Perfect Storm.
Take a look at the below chart. The percentages in the “Volatility” column indicate the monthly standard deviation of each index over the past five years. You’ll note that while most African markets outperformed the benchmark S&P500 index, most (with a few interesting exceptions) also traveled a much more bumpy road to get there.
Index | Total Return (1/2007 – 1/2012) | Volatility of Monthly Returns (1/2007 – 1/2012) | Annualized Sharpe Ratio |
---|---|---|---|
MSCI Botswana Index | (4.6%) | 5.2% | (0.16) |
MSCI Kenya Index | (30.8%) | 11.1% | (0.24) |
MSCI Mauritius Index | 72.3% | 9.9% | 0.26 |
FTSE JSE Namibia Local Index | 135.5% | 5.2% | 0.85 |
MSCI Nigeria Index | (44.4%) | 12.0% | (0.33) |
iShares MSCI South Africa Index Fund | 36.2% | 9.1% | 0.13 |
Tanzania All Share Index | 9.7% | 3.5% | (0.01) |
Uganda SE All Share Index | (34.3%) | 9.3% | (0.32) |
Lusaka SE (Zambia) All Share Index | 65.6% | 9.3% | 0.25 |
S&P 500 Index | (8.1%) | 5.7% | (0.19) |
So, how can we determine whether those juicy returns were worth an extra queasy stomach?

The Sharpe Ratio helps analysts to determine exactly this. It measures risk-adjusted returns by subtracting the risk-free rate from the return and dividing by the standard deviation. The higher the Sharpe Ratio, the more worthy the investment.
As you can see, all the markets above outperformed the S&P500 on a risk-adjusted basis except for Kenya, Nigeria, and Uganda where political instability and currency volatility conspired to create some very unhappy investors. Mauritius, Namibia, South Africa, and Zambia, on the other hand, utterly crushed US stocks.
So, the results are mixed. But I believe this analysis helps demonstrate that African stocks merit a close look from international investors.