The first-quarter rout in emerging-market assets has left most African currencies undervalued -- with three exceptions: the Egyptian pound, Nigerian naira and Kenyan shilling.
Egypt’s currency leads the trio: it is 16% overvalued, as measured by its current real effective exchange rate relative to the five-year average. By that measure, the naira is 10% overvalued and the shilling 8%, according to data compiled by Bloomberg. Nigeria and Egypt have managed floats, while the shilling is a free-floating currency that sees occasional central-bank intervention.
“This does not immediately imply that there is a large devaluation coming, as all of these central banks have sizeable FX reserves that they can deploy to defend their currencies,” Neville Mandimika and Daniel Kavishe, analysts at Rand Merchant Bank in Johannesburg, wrote in a client note. “What we will probably see is faster reserve depletion in these markets as they seek to protect their currency’s purchasing power.”
Angola’s kwanza is the most undervalued currency, followed by Zambia’s kwacha and South Africa’s rand.
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