Lagos the laggard for how much longer? – asks FBN Capital

Early this week, FBN Capital analysts said they charted the year-to-date (ytd) performance of the three leading stock markets in sub-Saharan Africa (SSA).

Their finding was that Lagos (that is Nigerian Stock Exchange), having been by far the strongest of the three in 2013, with a rise of 47.2 percent in local currency terms, has become the laggard.

Nairobi (Kenya) is broadly flat ytd, having achieved a gain of 19.2 percent in 2103. In contrast, Johannesburg (South Africa) is comfortably up ytd: “the parallels are tenuous since it is an emerging not a frontier stock market, and its daily turnover is many times that of the other two exchanges combined.”

Also interesting in the analysts’ finding is that all the three markets are vulnerable to tapering by the US Federal Reserve.

“Indeed, the FOMC has already announced four $10 billion reductions in the Fed’s monthly asset purchases. As monetary conditions tighten in the US, so we are seeing a part retreat by offshore portfolio investors from emerging and frontier markets. We continue to feel that Nigeria will escape the worst in this process because of the strength of its external balance sheet, by which we mean very low external indebtedness and reasonable reserves cover,” FBN Capital analysts further noted.

They noted that Lagos exchange had also benefited from the sizeable gains in its weighting from the rebalancing of the MSCI Frontier index this month.

“GDP growth prospects are also stronger. The AfDB’s African Economic Outlook 2014 projects growth this year of 7.2 percent in Nigeria, 5.7 percent in Kenya, and 2.7 percent in South Africa,” these analysts added.