October 6, 2021/Proshare

by FBNQuest Research   

We turn our attention to the performance of the Nigerian Stock Exchange (NGX ASI) relative to the two other bourses that we track across sub-Saharan Africa (SSA), the NSE20 in Nairobi and the all share in Johannesburg (Joburg). We have produced many commentaries about the NGX’s ytd underperformance compared with its counterparts in Joburg and Nairobi. However, we see that the NGX broke through a fresh barrier yesterday, moving into positive territory for the first time since mid-February. Although the NGX’s 1.1% ytd return still trails that of Joburg (+8.6%) and Nairobi (+7.9%), the gap has narrowed significantly, with the excess return of the Joburg bourse vs the NGX now at just 7.5%, down from a high of over 20% in the July-August period when the Joburg exchange reached new highs. 

The NGX outperformed its rivals in September, with a return of +2.6%, compared with a flattish (0.5%) return for Nairobi and a negative return of -4.7% for Joburg. 

The NGX’s favourable performance in September was largely attributable to domestic fund managers’ quarterly portfolio rebalancing, which encouraged buying interest in several bellwether stocks including Dangote Cement (DangCem) and Nestle Nigeria. DangCem’s 15% return for the month, in particular, contributed considerably to the NGX’s return.

Some observers may be surprised by Joburg’s robust gain in the first eight months of this year. We note that the bourse has benefited from the increase in commodity prices for much of the year due to the large participation of resource-based firms on its market. It has also profited from the currency impact, as many of the exchange’s firms have operations in other countries. 

Nigeria has fallen out of favour with the offshore community largely because of the fx liquidity constraints which has led to a pipeline of delayed external payments and taken a toll on foreign equity investors. 

Consequently, the offshore community continues to favour other emerging/ frontier market such as Egypt, Vietnam, and Bangladesh. 

On the domestic front, we expect that the market will continue to be supported by domestic investors, spurred on by corporate actions (buyback announcements) and the broader economic recovery from the worst of the pandemic.

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

Sources: Nigerian Stock Exchange; Bloomberg; FBNQuest Capital Research