February 11, 2022/Proshare
by FBNQuest Research
Of the three stock markets that we track, it is the Lagos bourse that has started the year on a strong note. it has outperformed its peers with a ytd gain of 10.7%, vs. a gain of 3.7% by Jo’burg (all-share index), and a flattish performance by the Nairobi NSE20. In 2021, Lagos trailed Jo’burg by a significant margin. The latter delivered an impressive gain of 24%, its best performance in over a decade, compared with a 6% return by the Nigerian all-share index (NGX ASI), and Nairobi’s 2%.
Underpinning the NGX’s performance are a positive showing by newly listed BUA Foods which rallied by over 60% at its peak, offshore investor interest in fungible names like Airtel Africa and Seplat, and more modest gains by bellwether stocks such as Dangote Cement, MTN Nigeria, and BUA Cement.
The bourse’s positive form has also been matched by improved activity. Daily turnover on the NSE has averaged USD13.5m ytd, compared with USD8.4m in 2021.
Domestic investors have dominated the trade volumes, with a substantial portion of the appetite linked to BUA Foods which listed in January, and Dangote Cement, which conducted a share-buyback.
Except for the few exit trades on fungible names, foreign portfolio investors (FPIs) have mainly remained on the sidelines. The backlog of delayed external payments can’t be ignored.
The rally in crude oil prices since 2021 and into 2022 has not led to a change in offshore investor appetite because it has not translated into a tangible increase in fx inflows. Nigeria has not been able to capitalise on the higher prices due to its low crude oil output;
Aside from Johannesburg, which saw gains from mining companies and luxury group brands last year, Cairo is another market that FPIs are interested in.
In comparison to Lagos, the Cairo stock exchange has a larger composition base, including construction and materials, telecommunications, and real estate amongst others. A trading day’s volume of c.USD55-60m is not uncommon, while upwards of USD100m are reached on busy days.
The Q4 earnings season, which might generate further bullish sentiments if earnings surprise favourably, is a potential positive. However, a possible increase in fixed income yields later this year could lead to a rotation out of equities and into fixed income in H2.operator.
