Culled—Proshare
March 25, 2020
By FBNQuest Research
The three sub-Saharan Africa (SSA) stock markets we periodically cover have joined in an undignified race to the bottom since the global sell-off in the face of the coronavirus and the crashing oil price. The Jo’burg all-share leads the race (see chart): the growth story is not compelling (the Reserve Bank sees -0.2% this year) but the driver is more the market characteristics. Every reverse in EM over two decades since Russia in 1997 has brought an exaggerated dumping of South African assets, the currency above all, due to the abundant liquidity. 
Turnover has averaged US$7.1m ytd in Nairobi and US$14.0m in Lagos, compared with US$1.5bn on a good day in Jo’burg.
We struggle to explain why the NSEASI has not performed as badly as the market in Nairobi (NSE20). Equity investors like a good growth story and will know that the IMF’s latest World Economic Outlook has growth in Kenya this year at 6.0% and in Nigeria at 2.5% (since trimmed to 2.0%). Also, Nairobi provides greater diversity sectorally, and therefore defensive qualities.
That said, we note that Kenya is much more indebted than Nigeria, notably in Eurobond exposure. Also we suspect that the NSEASI has benefited because of the number of ‘big-hitters’ with a track record: in Nairobi, in contrast, the most-traded stock is the same (Safaricom) four sessions out of five.
For the offshore community, the African market of choice is Cairo. The healthy growth and the reforms count for a lot but the stronger point is probably the comfort blanket of a successful IMF programme (recently concluded).
Performance of three SSA market indices, 2020 (% chg ytd; local currency units)
Sources: Nigerian Stock Exchange; Nairobi Stock Exchange; Bloomberg; FBNQuest Capital Research
There was an argument that the PFAs would move heavily into the NSE because of the poor returns on those debt securities they are allowed to hold. This thinking has been undermined by the recent widening of FGN bond yields.