Culled—Proshare

February 18, 2020

By  FBNQuest Research

The NSEASI was briefly the best performing index globally in January but its gains ytd have since been pared back to just 2.7%. This compares with 1.4% for the Jo’burg all-share and a loss of -3.9% in Nairobi (NSE20). The brief surge was driven by domestic investors, specifically by retail rather than institutional players.

Turnover in Lagos has averaged US$12.8m equivalent ytd, an improvement on last year’s comparable US$9.7bn made possible by good volumes in the first ten days. (For the record, a good day’s turnover in Jo’burg would be US$1.5bn.).

Now that the PFAs are excluded from the CBN’s open market operations (OMO), the hope is that they will begin to deploy the proceeds of their maturing bills in the equities market.

This has yet to materialize, however. We should be better informed after this week’s auction of FGN bonds when we can form a view as to how far the pension funds participated and can see how far the rates crashed. If the outcome is anything like January’s auction, we may be approaching the point the PFAs turn to the NSE.

Such a change in asset allocation is barely justified by the fundamentals. Nor does the FGN have a reform programme to drive equity investment.

The Kenyan economy is growing at twice the speed of the Nigerian economy yet the NSE20 is struggling. The liquid African market of choice is currently Egypt, and further afield Vietnam, the Philippines and Bangladesh.

Performance of three SSA market indices, 2020 (% chg ytd; local currency units)

Sources: Nigerian Stock Exchange; Nairobi Stock Exchange; Bloomberg; FBNQuest Capital Research

The NSE’s latest monthly investment report from December shows total transactions in 2019 at N1.93trn, compared with N2.40trn the previous year. The domestic/foreign split for the year was 51/49, and there was a net outflow of N104bn by foreign investors.