July 14, 2021/Proshare

By FBNQuest Research

The all-share index (NSEASI) has struggled this year in the absence of any positive support from either government policy or data releases. Its ytd decline of -6.0% compares with gains of 4.6% posted by Nairobi (NSE20) and 13.3% by Jo’burg (all-share index). As the crude price has climbed above USD60/b and, more recently, USD70/b, there has been no passthrough to the bourse or, for that matter, to gross official reserves. 

Daily turnover on the NSE has averaged USD9.7m ytd (at the I&E/NAFEX rate), compared with USD10.4m in the same period of 2020. It has not exceeded USD10m since the first week of May. In Nairobi the ytd figure is as low as USD5.1m.  

Foreign portfolio investors (FPIs) have been scarce in the Nigerian market. There is no compelling investment rationale, and they have the luxury of many emerging and frontier markets from which to choose. Cairo would be their preferred market in Africa, and further afield south and south-east Asia beckon (notably Vietnam, the Phillipines, Pakistan and perhaps Bangladesh).  

The pipeline of delayed external payments that developed last year, whatever its size, is plainly a disincentive.  

All investors are looking for market-friendly reforms. The removal of fuel subsidies and the launch of a cost-reflective tariff for electricity consumers were two such last year. However, a combination of the oil price recovery and the FGN’s reluctance to impose additional costs on the population during the COVID-19 experience have together stalled the delivery of reform.  

In Q4 ’20 there was a short-lived surge in the buying of equities by domestic institutions due to a collapse in returns in fixed-income holdings. Those returns have since recovered and domestic stocks accounted for no more than 6.7% of assets managed by the regulated pension industry at end-April.  

Jo’burg is again the outperformer of the three markets covered. Because South Africa has been comfortably the worst affected economy on the continent by COVID-19, investors are now hoping for a strong rebound from its most internationally exposed sectors, tourism and transportation. As elsewhere, there have been false starts as the government has prematurely anticipated the defeat of the virus and relaxed controls accordingly.

Performance of three SSA market indices, 2021 (% chg ytd; local currency units)

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