For diversification look to Africa

A previous post remarked on the correlation between the UK and US equity markets and how this has increased markedly in the last few decades.

A recent academic paper shows that correlation has been increasing between almost all regional indices and the S&P 500 Index.  This is illustrated in the following chart from the paper.

As can be seen, the trend is towards greater correlation.

Although one region, Sub-Saharan Africa (excl. South Africa) is a laggard. In addition, the correlation between the individual markets within the region is also still relatively low.

Hence, this is where global investors might find some diversification.

Moss, Todd J. and Thuotte, Ross, Nowhere Left to Hide? Stock Market Correlation, Regional Diversification, and the Case for Investing in Africa (March 7, 2013). Center for Global Development Working Paper No. 316


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