Stretched Argument for Nigerian Equities; Sentiment of FPIs Deteriorate

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Tuesday, June 16, 2020 / 08:58 AM / By FBNQuest Research / Header Image Credit: FBNQuest 

                                                                                  

Our chart highlights the deterioration in the sentiment of foreign portfolio investors (FPIs) towards listed Nigerian equities over many months. The last net inflow goes back to September and was minimal (N1bn). The net outflow was highest (N66bn) in March 2020, which saw the spectacular and mercifully short-lived collapse of OPEC+'s accord on output restraint. In calendar years their net outflow widened from N66bn in 2018 to N104bn in 2019. Turnover has again disappointed, averaging US$11.4m ytd this year at the I&E window rate (NAFEX) vs US$10.4m in the comparable period in 2019.


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A good equities story requires both robust GDP/consumption growth and a pattern of market-friendly reforms by the government. Sadly, Nigeria offers neither and has not achieved a decent rate of GDP growth since 2014. Household spending has been squeezed, which undermines the case for consumer stocks. In these circumstances, an interesting new arrival on the NSE last year, namely MTN Nigeria, has underperformed.

 

The chosen frontier market for FPIs in Africa remains Egypt.  

 

It has become challenging to make an investment argument for Nigerian equities. Such would be constructed around the recovery in the oil price and global demand in recent weeks, along with the related easing of lockdowns in G7 economies and the IMF's disbursement of US$3.4bn to help tackle Covid-19. It is worth noting that for a handful or two of quality stocks the dividend yield is higher than the crashed yield on NTBs.

 

Foreign transactions on the NSE (N bn)

 

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

 

A pipeline of well above US$1bn in delayed repatriations (mostly among fixed-income investors) clearly undermines the investment rationale for FPIs. In the typical week of 01 to 05 June, they supplied just US$15m to the I&E window. Some would be more forgiving if the authorities had shared their thinking with them at the point of closing the window.

 

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