Nigerian Bourse lags Kenya, South Africa exchanges

The Nigerian Exchange Limited (NGX) All Share Index (ASI) has since February this year underperformed relative to two other indices FBNQuest analysts track periodically in sub-Saharan Africa – the NSE20 in Nairobi and the all share in Johannesburg.

The Nigerian stock market’s -2.5percent decline year to date (YTD) compares with gains of 9.9percent in Nairobi and 12percent in Johannesburg.

“Growth prospects, which are a core driver for investors, are dull. The IMF currently sees 2.5percent for Nigeria in 2021. This compares with 7.6percent for Kenya and 4percent for South Africa. The last now looks toppish in our view”, FBNQuest analysts said in a recent note to investors.

“Neither the narrative for the economy nor demand factors are at all supportive. Pre-Covid there were some reforming signals in Nigeria, but these have disappeared and the FGN is reluctant to add to the pain felt by the low-income majority. Subsidy removal, whether for electricity or gasoline/petrol, falls into this category of reform”, FBNQuest analysts said further noted.

Daily turnover on the NGX has averaged $8.6million ytd (at the I&E/NAFEX rate), unchanged from the same period of 2020. It has not exceeded $10million since the first week of May. In Nairobi, the ytd figure is as low as $4.9million.

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“Foreign portfolio investors (FPIs) have become less visible players. They accounted for the 21percent of all transactions on the Lagos exchange in January-July 2021, a sharp fall on the 39percent posted in the year-earlier period. The pipeline of delayed external payments that developed last year is surely a factor. We do hear anecdotal evidence that some FPIs have made at least a partial exit yet these tend to be investors in debt securities rather than equities.

“Regulators forget sometimes that FPIs have a large choice of emerging/frontier markets from which to choose. Their favourite in Africa remains Cairo. Further afield, they are heavily invested in markets characterized by a combination of economic reforms, entrepreneurial culture, and new listings. Vietnam, the Philippines, and Bangladesh tick many of the required boxes.

“Domestic institutions were responsible for 46percent of all transactions in the first seven months of this year. A sub-group of this category, the PFAs, have added to their holdings from a low base to a total of N860billion at the end-July. (As a point of reference, the market cap of the exchange is roughly N20trillion.)

“The 33percent balance of transactions stem from domestic retail, for which no convincing analysis is available”, the analysts noted.