Nigeria Stocks set to extend election year woes as market lags African Peers

With just about three months left on the calendar year, there might be little respite for investors who had their hands burnt as Nigeria’s bearish equity market poses to continue a streak of losses in election years since 2011.

In the last two election years, the stock market has sustained a bearish trend with investors losing an average of 16.8 percent in both years, data sourced from Bloomberg showed.

In 2003 the equity market gained 66 percent and in 2007 it advanced 75 percent. But in 2011 the market slumped by 16 percent and four years after tanked 17 percent.

Given the trend in the market, this spell might extend for the third straight election year without much-needed support to inspire confidence of investors, analysts say.

They also note that the market is unlikely to reverse year’s losses and investors must look beyond short term price movements if they want to position in value stocks.

The main equity gauge on the Lagos bourse declined 1.10% Tuesday bringing its performance so far in the year to -12.98 per cent.

This means Nigerian stocks are one of worst performers continentally and may continue to be surpassed by African peers in the medium term except fiscal authorities come up with bold policy pronouncements to revive the already-weak investor sentiment.

The main equity index at the Nigerian Exchange has declined 12.98 percent since January, underperforming Ghana (- 11.27%); Egypt (+1.03%), Kenya (+3.71%) and even embattled South Africa that have delivered 5.47 percent gain to investors since the start of the year.

Nigerian stocks remain extremely cheap compared to peers in frontier and emerging markets which could imply investors are less confident about the growth potentials of Africa’s biggest economy struggling to recover from a recent recession.

An average investor is willing to pay seven times for each naira earnings to buy Nigerian stocks lower than Ghana (15.1x); South Africa (15.1x), Kenya (11x), Egypt ( 11x), even much below frontier and emerging markets average of 9.2x and 13.6x.

Following a tepid performance of the equity market latest week, analysts at Lagos- based investment house, Chapel Hill Denham, noted corporate actions to be the recent main driver of investors demand for Nigerian stock.

The analysts noted that the trend might persist on the back of the country’s weak macroeconomic fundamentals.

Nigeria’s Gross Domestic Product (GDP) slowed for the second straight quarter according to latest figures by the National Bureau of Statistics (NBS) as non-oil sector dragged growth which printed 1.94 percent in the second quarter of 2019.

While prospect remains uninspiring, Chapel Hill Denham says external financing conditions are favourable for foreign portfolio flows and that investors will continue to snap up bargain opportunities for blue-chip stocks when the become available.

Shares on the exchange that have outperformed the broad market so far in the year include Dangote Flour (224.09%), MTN Nigeria ( 40.4%), Lafarge Wapco (20.48%), Sterling Bank ( 5.79%), Cadbury ( 4.5%), Custodian Insurance (3.54%).