NSE Just Below the Water, Nairobi Drowning


Tuesday, September 22, 2020 09:44 AM / By FBNQuest Research / Header Image Credit: Ecographics


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Of the three sub-Saharan Africa (SSA) stock markets we periodically cover, the Jo'burg all-share has outperformed its Lagos equivalent by a short distance. Nairobi (NSE20) has been the laggard, and its current performance of -34.0% ytd is worse than that seen in March/April. We show Jo'burg in the absence of any credible alternatives in SSA, while recognizing that it has more in common with advanced economy markets by virtue of its liquidity and transparency. These attributes have made South African assets, notably the currency, a barometer of broad EM sentiment.

Turnover has averaged US$6.2m ytd in Nairobi and US$9.2m in Lagos, with the trend downwards in both cases. This compares with US$1.5bn on a good day in Jo'burg.


Equity investors are generally looking for good GDP growth and household spending, and market-friendly reforms (among other things). Since Nigeria has not delivered much in this respect, we ask why the NSEASI (-4.7% ytd) has performed so much better than Nairobi.


The IMF sees the economy contracting this year in Nigeria and South Africa  by -5.4% and -8.0% respectively, and Kenya posting modest growth of 1.0%. Household spending in Nigeria has still not recovered from the earlier recession that spanned 2016 and 2017. There has been positive movement on fuel subsidies, not that the FGN is trumpeting the fact. 


In its favour the NSEASI offers two handfuls of stocks with a good track record and attractive book value. Nigeria's debt profile in this year of Covid-19 is far healthier than Kenya's, and its market is less dependent on offshore players, given its large base of domestic institutional investors.


Performance of three SSA market indices, 2020 (% chg ytd; local currency units)

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


For the offshore community, the preferred African market remains Cairo.


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