After a punishing start to the year, shares in Africa have rebounded and are now the leading performer for the global stock market in 2024, based on a set of ETFs tracking the world’s main regions through yesterday’s close (May 28).

VanEck Africa ETF (AFK) is up 16.6% year to date. That’s a healthy premium over the global market equity market’s 9.2% gain (VT). It’s also ahead of the US stock market (VTI), which is up 10.7%.

After bottoming in March, AFK mounted an impressive recovery, briefly interrupted in the global selloff in April. Over the past month, the fund has regained its bullish profile and rallied more than 9% so far this month.

What’s driving the revival in animal spirits for AFK? The largest sector allocation in the fund is in materials (36%), which has been a plus this year as commodities prices have risen.

Another factor may be linked to politics in South Africa, which represents the largest country allocation in AFK at 38% of net assets (as of Apr. 30), according to Van Eck. Today’s election is expected to diminish the influence of the African National Congress, which has maintained a parliamentary majority since apartheid ended three decades ago. By some accounts, that possibility lays the groundwork for a change in economic policy that may ramp up growth.

Although the ANC is still expected to remain the largest party, analysts predict it will lose its majority for the first time and be forced to share power with one or more competing parties. The possibility of much-needed economic reform, in other words, is a possible outcome of today’s election, which may be a factor in driving AFK’s share price higher.

But the depth of South Africa’s economic challenges leaves plenty of room for caution. As The Economist observes, the stakes are high for today’s election and the odds for a quick round of reform are low, due to the depth and breadth of problems:

“Thirty years after the end of white rule South Africa is in trouble. Graft is endemic, GDP person is lower than it was in 2008 and the state is becoming ever less effective. The temptation to resort to ruinous populism to stay in power will increase. Though the worst outcomes may be averted this time around, South Africa cannot escape fateful choices for ever.”

The acid test for South Africa, and perhaps the Africa ETF (AFK), one might reason, still lie ahead, after the market has had time to digest the implications of today’s election.