Rory Kutisker-Jacobson, fund manager of the Allan Gray Africa ex-SA Equity Fund

After years of mediocre to poor returns across African markets, long-suffering investors were finally rewarded in 2025. For the first time in many years, emerging and frontier markets outperformed developed markets, and within these markets, Africa shone.

For the 2025 calendar year, the S&P 500 was up 17.9%, the MSCI World Index (World Index) was up 21.1%, the MSCI Emerging Markets Index (EM Index) rose 33.6%, and the MSCI Emerging Frontier Markets Africa ex-SA Index (EFM Africa ex-SA Index) increased by a staggering 42.2%.

But can investors in emerging and frontier markets expect this performance to continue?  According to Rory Kutisker-Jacobson, fund manager of the Allan Gray Africa ex-SA Equity Fund, there is room for optimism and caution.

“Measured over three years and longer, the stellar returns of African markets in 2025 look significantly less … well … stellar. One could argue that much of the outperformance seen in African markets this year resulted from recovering the underperformance of prior years,” he says.

Over three years, the S&P 500, World Index and EM Index have delivered returns of 23.0%, 21.2% and 16.4% per annum (p.a.) respectively. Against this backdrop, African markets, as reflected by the EFM Africa ex-SA Index, have lagged, returning 14.5% p.a.

Another point to consider, he says, is that past performance is no guarantee of future performance. “Returns across African markets have historically been volatile and lumpy. As such, investors should temper expectations that consistently stellar returns will be achieved without some degree of volatility and drawdowns over any multi-year period.”

However, he believes that the upside potential in these markets remains compelling.

“There is ample evidence of companies that are generating healthy levels of cash and, on our estimates, can be bought for less than 10 times spot earnings,” says Kutisker-Jacobson, contrasting this with the S&P 500, MSCI World and MSCI Emerging Markets indices, which traded on price-to-earnings multiples of 27 times, 24 times and 17 times respectively, at the end of 2025.

Examples of this are Eastern Tobacco, the dominant cigarette producer in Egypt, and Delta Corporation, the dominant beer producer in Zimbabwe.

“Tobacco had a difficult 2023 and 2024, but in 2025, Eastern Tobacco generated a total US dollar return of 43.1%. Despite such a strong return, on our estimates, it trades on a forward price-to-earnings multiple of less than 7 times and a dividend yield north of 7.5%,” says Kutisker-Jacobson.

He adds that in Zimbabwe, despite the perceived macro headwinds, Delta Corporation is going from strength to strength.

“Beer volumes sold are at 15-year highs and the company continues to generate significant free cash flow. As more than 80% of Delta Corporation's Zimbabwean sales are now undertaken in US dollars or rands, it is able to pay out healthy dividends in US dollars. The share has rallied in the last few months, returning 61% in 2025, but it remains attractive in our minds,” he says.

At year-end, Delta Corporation was trading on an earnings multiple of roughly 8 times and a dividend yield of 5.6%.

Allan Gray is also seeing opportunity in banks, with exposure largely concentrated in four names: Three Nigerian banks in Guaranty Trust Holding Company (GTCO), Zenith and Stanbic IBTC, and Egypt's Commercial International Bank (CIB). Collectively, these four banks accounted for 23.7% of the Allan Gray Africa ex-SA Equity Fund’s net asset value (NAV) at year-end. The unweighted, average dollar return of these four shares in 2025, including dividends and other corporate actions, was 77%.

“After such strong performance, you would expect them to trade at elevated multiples, but given strong fundamental performance and an extremely depressed starting base, they are anything but. We believe we are paying a low price for tier-one banks in their respective markets, particularly when you consider that the average return on equity across the four is north of 30%.”

Across the basic materials and energy sectors, Kutisker-Jacobson says Allan Gray’s largest exposures are to Zimplats, a platinum group metal (PGM) miner in Zimbabwe, Endeavour Mining, a West African gold miner, and Seplat, a Nigerian oil and gas producer.

In 2025, the Allan Gray Africa ex-SA Equity Fund outperformed all of the above benchmarks, returning 62.9% for the year.