Culled—Proshare

June 29, 2020

by FBNQuest Research

Of the three sub-Saharan Africa (SSA) stock markets we periodically cover, the Jo’burg all-share has performed the best this year and Nairobi has been the laggard by some distance. As the global economy has risen off the floor, so has the JSEASI picked itself up. By virtue of its liquidity and transparency the market has developed into a barometer of broad EM sentiment. This explains its loss ytd of just 6.0% when the economy is heading for -7.2% GDP contraction. It also explains the dumping of South African assets, the rand above all, at times of EM headwinds.                                                                                                    

Turnover has averaged US$6.8m ytd in Nairobi and US$10.9m in Lagos, compared with US$1.0bn on an average day in Jo’burg.

We struggle to explain why the NSEASI (-7.5% ytd) has performed so much better than Nairobi (-27.0%). The GDP figure this year may well be the worst since the 1980s. Reforms are elusive, and Nigeria’s status as a frontier market with MSCI is under discussion (although likely to be preserved). The crashing oil price has again highlighted the weakest point of the sovereign credit story.

That said, the NSEASI has seen decent inflows from some FPIs impatient with the waiting time for the repatriation of earlier sale proceeds. It also benefits from a handful or two of high-profile stocks with a good track record and attractive book value. On the macro side, Nigeria’s debt profile is more positive than Kenya’s, particularly with Eurobonds, and it has a far larger base of domestic institutional investors.

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

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

For the offshore community, the favoured African market remains Cairo. The healthy growth and the reforms are important. Most valued, however, is the fact that the government has successfully concluded its latest IMF programme and promptly applied for a follow-up (a stand-by credit). Further afield, the favourite would be Vietnam.