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Eagle-eyed investors see opportunity amid Sanusi sell-off

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Be fearful when others are greedy and greedy when others are fearful is a famous quote made by the legendary investor, Warren Buffet.

Amid the sell-off that has engulfed Nigerian financial markets since last week’s suspension of the Central Bank governor, Sanusi Lamido Sanusi, some investors may be seeing an opportunity to profit as asset prices retreat to levels that represent a compelling buying opportunity.

David Cowan, Citi Bank’s senior economist for Africa, notes that while the fallout between President Goodluck Jonathan and Sanusi has taken a new twist with Sanusi’s suspension, when the dust settles, less would have changed than initially assumed.

“The issue to watch is whether the suspension of Sanusi will speed up the process of nominating a permanent successor…which would actually be a positive,” Cowan said in a note released on Friday titled ‘Nigeria – Sanusi suspended, but things move on’.

“This seems to have already been the case with the president nominating Godwin Emefiele, the current managing director of Zenith Bank, and we think it unlikely he would argue for a major change in exchange rate policy.”

The grounds for cautious optimism despite the current negative sentiment stem from the fact that exchange rate stability is one of the major anchors helping to attract much of the portfolio fund flows that Nigeria has been receiving in recent years.

If investors are reassured that the status quo would be maintained in spite of Sanusi’s suspension, it may mean that there are some upsides to financial assets in the medium term.

That re-assurance may already have begun as Doyin Salami, a member of the Monetary Policy Committee (MPC), said last Friday that Nigeria’s central bank would preserve policy continuity and its inflation focus even with the removal of its governor.

Turmoil in the markets since the decision was announced is an over-reaction “to the circumstances on the ground”, Salami said on a conference call with reporters and investors. Nothing has “changed fundamentally for Nigeria,” he added.

Frontier markets – Including Nigeria – posted inflows of $407 million in the first six weeks of 2014, largely based on their currency pegs to the dollar, while $21 billion was pulled from emerging markets, EPFR Global data show.

This has led to a gain of more than 3 percent in the MSCI Frontier Market Index this year, pushing stocks to a 2008 high.

Nigerian equities will from May 2014 make up 20 percent of the MSCI frontier markets index – the key benchmark for equity investors – from 14 percent today, leading to increased bid for Nigerian equities from global fund managers.

The current uncertainty over Sanusi’s suspension has, however, clouded the bullish outlook in the short term.

The naira weakened as much as 3.2 percent to N168.90 per dollar after news about Sanusi’s suspension filtered out. Stocks fell again on Friday as the NSE-ASI shed 520.45 points or 1.34 percent to close at 38,295.74 points, bringing year-to-date losses to -7.34 percent.

Despite the lingering situations, however, Nigerian equities “look very attractive compared to what was obtainable in 2013”, note Meristem Securities research analysts in a report released on Friday.

“The current market price-to-earnings (P/E) ratio of 13.53x compared to 2013 year-end P/E of 14.5x, and the sectoral P/E compared with 2013 year-end P/E show that the market looks ripe for investors to savour,” they add.

Some individual stocks are showing signals of being oversold while others have held up well during the recent sell-off, a positive signal that shows investors are not indiscriminately selling across the board.

Guaranty Trust Bank (GTB), regarded as the best-in-class bank in Nigeria among its peers, is currently trading at N23.67 per share. Just as recently as one month ago (Jan. 23), it traded at N28.5, meaning it is down some 20 percent in 30 days.

At the other extreme, heavyweight bellwether Dangote Cement is bucking the down trend in equities with a 7.3 percent gain year to date. The cement maker, which is the largest listed company in Nigeria with a market capitalisation of $24.2 billion, grew after-tax income by 46 percent to N154.9 billion ($974 million) in the third quarter of 2013 from N105.5 billion a year earlier.

Nigerian companies are riding a growth wave that should positively affect the bottom lines, which saw them sign more than $13 billion of syndicated debt, four times the amount raised in 2012, according to data compiled by Bloomberg.

The economy grew 6.81 percent in the third quarter of 2013, figures from the National Bureau of Statistics (NBS) show, while gross domestic product (GDP) will increase by 7 percent this year, according to IMF estimates.

“Indeed, there are loads of buying opportunity in the market currently,” said Abiodun Keripe, head of research at Investment One Financial Services Limited, in a response to questions.

“Clearly, company fundamentals remain and have not been affected by the news flow, and as such I will expect to see some stability in the weeks ahead.”

By:  PATRICK ATUANYA