Africa continued to disappoint investors in 2016. Frontier African markets traded downwards during the quarter with Ghana falling 10% and Tunisia, Nigeria and Kenya down 5%. Volumes remained muted across the region and much of the losses across the region was due to FX moves.

In 2016 Frontier Markets substantially lagged both the MSCI EM index and to a lesser degree the MSCI World index. African markets were not spared as multiple of shocks occurred pushing the markets lower. We saw Nigeria, Africa’s most populous nation, fall into recession for the first time in 25 years, largely because of low oil prices and failed economic policies. In Egypt a massive devaluation hit foreign investors as the central bank let go of the peg to the USD and Kenyan equities plunged as banks were slapped with a cap on lending rates.

The outlook for the continent is not very rosy but after three years of successive losses the bear market is looking exhausted and we are cheerful to see Frontier Markets finally outperforming the broad indices over the past weeks. We expect that country specific factors will be the dominant factor of the outlook for the individual countries. In Kenya there is an upcoming presidential election, in Nigeria the issue with a poorly managed FX regime and in Egypt the reset of the economy after the devaluation. Higher trending commodity prices will support the market as well as a slowdown in the USD rally. As foreigners were on the selling side throughout 2016, the continent is likely to be sheltered if we see increased global market volatility. A change in sentiment towards African assets could also quickly move the stock markets as liquidity is limited.