Forex Investment and Currency Trading

The recent global firestorm wreaked havoc on Emerging Market (EM) assets. No EM region was spared and African markets were also impacted.

FX Correlations

• African currencies, outside of BWP and ZAR, still have very low or negative correlations with EM FX
• BWP and ZAR have consistently the highest correlations within Africa to other major EM currencies
• NGN correlations with TRY, BRL and IDR are becoming increasingly negative
• KES correlations have increased marginally from very low levels; higher correlation with TRY
• GHC, ZMK and TZS have very low or negative correlations with TRY, BRL and IDR
• ZAR and BWP have consistently the highest correlations to other major EM currencies
• TZS has the highest inter-African correlations, mostly to ZMK and KES

Commodity Correlations

• African currency correlations to commodities have increased significantly in the last few years
• ZAR and BWP have consistently the highest correlation in Africa to base metals
• BWP has consistently the highest African correlation to oil
• ZMK correlations with both oil and base metals have increased sharply in the last few years
• TZS correlations with base metals have increased sharply in the last few years
• NGN has consistently very low correlations to oil or base metals
• GHC has consistently negative correlations to base metals

Conclusions:

• NGN and ZMK consistently outperformed the EM average spot performance
• BWP, ZAR and GHC consistently underperformed the EM average spot performance
• TZS relative performance to average has improved, while that of KES has deteriorated