Lagos, the Laggard of African Exchanges


Friday, September 10, 2021 / 09:27 AM / By FBNQuest Research / Header Image Credit: LinkedIn/NGX


Since February this year, the NSEASI has underperformed relative to the two other indices we track periodically in sub-Saharan Africa, the NSE20 in Nairobi and the all share in Johannesburg (see chart below). Its -2.5% decline ytd compares with gains of 9.9% in Nairobi and 12.0% in Jo'burg. Neither the narrative for the economy nor demand factors are at all supportive. Pre-Covid there were some reforming signals in Nigeria, but these have disappeared and the FGN is reluctant to add to the pain felt by the low-income majority. Subsidy removal, whether for electricity or gasoline/petrol, falls into this category of reform.


Daily turnover on the NSE has averaged USD8.6m ytd (at the I&E/NAFEX rate), unchanged from 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 USD4.9m.


Growth prospects, which are a core driver for investors, are dull. The IMF currently sees 2.5% for Nigeria in 2021. This compares with 7.6% for Kenya and 4.0% for South Africa. The last now looks toppish in our view.

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Foreign portfolio investors (FPIs) have become less visible players. They accounted for 21% of all transactions on the Lagos exchange in January-July 2021, a sharp fall on the 39% posted in the year-earlier period. The pipeline of delayed external payments that developed last year is surely a factor. We do hear anecdotal evidence that some FPIs have made at least a partial exit yet these tend to be investors in debt securities rather than equities.


Regulators forget sometimes that FPIs have a large choice of emerging/frontier markets from which to choose. Their favourite in Africa remains Cairo. Further afield, they are heavily invested in markets characterized by a combination of economic reforms, entrepreneurial culture and new listings. Vietnam, the Philippines and Bangladesh tick many of the required boxes.


Domestic institutions were responsible for 46% of all transactions in the first seven months of this year. A sub-group of this category, the PFAs, have added to their holdings from a low base to a total of NGN860bn at end-July. (As a point of reference, the market cap of the exchange is roughly NGN20trn.)


The 33% balance of transactions stem from domestic retail, for which no convincing analysis is available.

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

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

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