Africa's Recovering Economy Presents a Value-Added Option with 'AFK'

In a year of healing amid a vaccine rollout, emerging economies around the globe are looking to recover from the worst of the pandemic. ETF investors looking for alternative exposure in emerging markets (EMs) can find a valued-added option in Africa with the VanEck Vectors Africa Index ETF (AFK).

“Africa, like other regions, is reeling from the pandemic’s economic and social consequences,” wrote African Development Bank president Akinwumi A. Adesina in a Brookings Institute report. “The global economic downturn is undercutting every sector of Africa’s economy. Growth is expected to turn negative for the first time in almost 50 years, threatening the hard-won development gains of past decades. An additional 43 million Africans might be pushed into poverty.”

AFK seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® GDP Africa Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.

The index includes local listings of companies that are incorporated in Africa and listings of companies incorporated outside of Africa but that have at least 50% of their revenues/related assets in Africa. AFK is up about 15% within the past year.

AFK Chart

Swift Government Action

“Extraordinary times call for extraordinary measures. Indeed, the International Monetary Fund (IMF) estimates that Africa will need $1.2 trillion over the next three years to recover from the epidemic,” Adesina said. “The good news is that African countries have already taken a bold range of actions, from ambitious public health interventions to flatten the curve, to the expansion of social safety nets, to monetary and fiscal interventions on an unprecedented scale.”

Additionally, the African Development Bank responded with a much-needed capital injection.

“The Bank responded swiftly in April 2020 by launching a $10 billion COVID-19 Rapid Response Facility, which provides liquidity through crisis response budget support in order to help African governments implement their plans to control and mitigate the virus and its impacts,” Adesina added. “The month before, the Bank also launched a record-breaking $3 billion “Fight COVID-19” social bond on the global market—the largest-ever U.S. dollar-denominated social bond.”

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