Nigeria stocks emerge Africa’s best performers

…As 24% return beats market expectations

When Ekpeyong Bassey, a Lagos-based retail investor, staked N2 million in four Nigerian companies, Dangote Cement, Guinness, Seplat and Airtel on the first trading day of the year, he never expected an average return of 82 percent.

As of May 16, Bassey’s investment was worth N3.64 million, a return of N1.64 million on his investment.

That’s after Dangote Cement’s share price jumped 17 percent year to date while those of Guinness, Seplat and Airtel have gained 151 percent, 100 percent and 59 percent respectively.

“I didn’t see it coming,” Bassey, a 31-year-old civil engineer said. “My investment adviser had guided towards a 20 percent return for the year which I saw as a good opportunity to make some passive money. My only regret is that I did not invest more,” he added.

Nigerian stocks have rewarded local investors with the highest return among other African stocks this year, thanks to a combination of accommodative monetary policy and low yields on fixed income instruments.

With a return of 24 percent since the beginning of the year, the Nigerian Exchange Limited (NGX) has left other African markets in its wake.
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For instance, Nigerian stocks, on average, boast double the return of the second-best performing stock market – the Lusaka Securities Exchange in Zambia, which has gained 12 percent, according to data from Financial Times.

The NGX has also outperformed peers from the Johannesburg Exchange (6.1 percent) to the Egyptian Stock Exchange (-12.45 percent) and the Nairobi Securities Exchange (-15.91 percent).

It doesn’t stop there. Nigerian stocks have also outperformed emerging market peers, which are down 11 percent on average.

Some of the companies spurring the stock market rally, which is the biggest return in eight years, according to Bloomberg data, include Meyer Plc, a paint maker based in Lagos, which has returned 552 percent. That implies that an investor who staked N1 million in Meyer Plc’s shares at the beginning of the year would have made an extra N5.52 million as at May 16.

Other companies leading the charge include beer maker, Guinness Plc; tier-two bank, Wema; and palm-oil manufacturer, Presco Plc, all of which have rewarded investors with over double their investment in five months.

MTN, the country’s most capitalised company, has returned over 30 percent, exciting news for particularly new investors who partook in its initial public offer last year.

“We are only five months into the year and the stock market is already running ahead of our full-year estimate of a 16 percent return,” said Tajudeen Ibrahim, director of research at top investment bank, Chapel Hill Denham.

There are three factors responsible for the impressive stock performance in Nigeria, according to Ibrahim.

“The accommodative monetary policy by the central bank despite rising inflation is one of those factors, coupled with unattractive fixed income yields and improvement in corporate results of some Nigerian companies,” he said.

Whereas interest rates are rising in other markets to curtail rising inflation, rates have remained stable in Nigeria as the authorities attempt to balance rising inflation with weak economic growth and ballooning public debt service costs.

Nigeria’s benchmark interest rate has remained at 11.5 percent for two years, even though analysts are now expecting an increase before the end of the year as inflationary pressures mount.

The country’s headline inflation rate has accelerated for six straight months, hitting 16.82 percent on rising food and energy prices, according to the National Bureau of Statistics. One-year Treasury bill yields are around 4 percent, four times lower than inflation rate.

“In a pre-election year, one would have expected investors to be taking cover but there seems to be appetite across the market for various reasons such as good corporate results, dividend payments, expected future earnings growth,” said Idris Toriola, an equities trader at Stanbic IBTC Stockbrokers.

The bullish run by Nigerian stocks may however not be sustainable. Interest rates may soon start to rise as the Central Bank of Nigeria comes under pressure from rising global interest rates. At the last Monetary Policy Committee meeting, four out of 10 members of the committee voted for a hike in interest rate, leading analysts to expect a hike in the second half of the year.

Nigeria’s stock investors gain N1.2trn in week ended May 13

Sector-specific market moving news may yet come to the rescue for some stocks like the telecommunication companies, according to Ibrahim, who said news like the approval of a payment service banking license for MTN and Airtel may well see both stocks continue to outperform through the year.

For Toriola, some undervalued stocks like banking stocks, GTCO, Access, UBA, Zenith as well as NASCON, Nestle and Lafarge still deserve investor interest.

There’s a feeling among market players that Nigerian stocks could be doing better if foreign investors were active in the market.

Foreign investors have largely exited the market due to acute foreign exchange shortages and are yet to return due to a lack of confidence and transparency in Nigeria’s FX management system.

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