So far in 2016, no market has been spared the toxic blend of plunging oil prices, global growth headwinds and policy uncertainty. For Africa, these forces have combined with government mismanagement and deep-rooted corruption that have made the investing climate more uncertain than ever. However, jitters about Sub-Saharan Africa stretch way back. Over the past couple of years, sky high optimism about Africa’s potential has quickly turned awry as the continent’s bond and equity markets took the plunge.

Bear Market Blues

By the end of February 2016, five of the 14 biggest sub-Saharan African equity indices had met the technical definition of a bear market, a situation where an market declines 20% or more from its previous bull market highs. An additional six market gauges have declined more than 10%, raising the specter of additional weakness mirroring the region’s bigger markets.[1]

The carnage has hit Africa’s two biggest economies especially hard. Nigeria, which has been struggling with a shrinking stock market since the end of 2013, declined further into the abyss in 2016. The country’s All Share Index, which tracks general market movement of all shares listed on the exchange,[2] declined more than 15% through the first two months of the year. Since the end of 2016, Nigeria’s main index has declined by half, reaching a valuation of around US$42 billion, which is a small fraction of Singapore’s level and only half of Colombia’s.[3]

South Africa, which is home to the continent’s biggest stock index, has run into its fair share of volatility since 2014. The benchmark FTSE/JSE All Share Index fell below its 200-day moving average in February for the first time since the 2008 bear market, when the index dropped 46% over five months. This time, South Africa’s benchmark index is down 12% from its November 4 peak, with more losses expected over the short-term.[4]

Over-Exuberant Fund Managers, Underperforming Economies