Investment Case Frayed at the Edges


Friday, May 08, 2020 / 09:24 AM / FBNQuest Research / Header Image Credit: FBNQuest 


From our chart we see the steady deterioration in the sentiment of foreign portfolio investors (FPIs) towards listed Nigerian equities. In calendar years their net outflow widened from N66bn in 2018 to N104bn in 2019. Data from the NSE for the first quarter show an increase from N27bn in 2019 to N121bn this year. The net outflow was highest in March 2020, which saw the spectacular collapse of OPEC+'s accord on output restraint, and the pledge of both Saudi and Russia to open the taps. The two protagonists have fortunately since seen sense, and embraced the argument for further restraint.

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What is missing in the Nigerian equities story is both healthy GDP/consumption growth and a track record of market-friendly reforms by the government. Nigeria has not posted robust growth since 2014. Household spending has therefore been squeezed, undermining the case for non-bank stocks. Because of these shortcomings, some potentially interesting new arrivals last year on the NSE, led by MTN Nigeria, have underperformed.


The favoured frontier market for FPIs in Africa is probably Egypt. Further afield, we would pick out Vietnam, Pakistan and perhaps the Philippines.  

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We could construct an investment case for Nigerian equities. The IMF has disbursed US$3.4bn in emergency finance to tackle Covid-19, and funds from other multilaterals will surely follow. Now that lockdowns in some important consumer nations are being eased in stages and the Saudi-Russian spat has calmed, we could argue that the crude price is off its floor. Finally, we might argue that developments in the fx market and recent changes to retail fuel prices show that the FGN has a reforming agenda.


Foreign transactions on the NSE (N bn)


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Sources: Nigerian Stock Exchange (NSE); FBNQuest Capital Research


Since a pipeline of an estimated US$1bn has emerged for the delayed repatriation of their sale proceeds in recent weeks (mostly among fixed-income investors), however, this investment case is unlikely to impress FPIs.

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