Nigeria Stocks Exchange Bull-Run Expected To Extend Into 2014

Nigeria Stocks Exchange Bull-Run Expected To Extend Into 2014

Analysts have cautioned investors against writing-off Nigeria stocks exchange after it rallied 47 percent last year, making it the best performing market in Africa.

In 2013, valuations in the Nigerian Stock Exchange All Share Index (NSEASI) soared the most since 2007 as banks recovered from the 2009 financial crisis and blue chips, from Dangote Cement to Nestle, rode the consumer boom to boost returns.

Investors are now tempted to shy away from the market as they persieve it to be topping off and a downturn could be eminent. But Analysts are cautioning against such sentiments.

“Why must investors look at Nigeria? Because from Feb 2014, we should see that Nigeria is the biggest economy in Africa at over $400 billion, and because it has one of the best reform teams in any country globally,” Charles Robertson, global chief economist at Renaissance Capital, told BusinessDay.

“Electricity reform is working. Growth of 7 percent a year, since 2000, means Nigeria’s GDP is on course to be bigger than 2012 Japan, at over $5 trillion in today’s money by 2050.”

BusinessDay says the benchmark NSE ASI has risen 109.3 percent since its February 2009 low of 19,803.6 points to 41,450 points last Friday.

Nigerian equities will from May 2014 make up 20 percent of the MSCI frontier markets index (the key benchmark for equity investors) from 14 percent of the benchmark today. This, analysts say, could lead to more interest in Nigerian equities from global fund managers who have exposure to frontier markets.

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The NSE’s equity market capitalization of $82 billion, is only equivalent to 31 percent of Nigeria’s $262 billion economy at year end 2012, meaning the stock market has room to grow before it truly reflects the economic activities that are taking place within the country.

Jim O’Neill who coined the term BRIC in 2001, as potential powerhouses of the world economy, has now identified the “MINT” countries – Mexico, Indonesia, Nigeria and Turkey – as emerging economic giants.

Analysts at Meristem Securities Limited, project that First quarter 2014 returns will be driven largely by corporate earnings scorecards and dividend/ bonus benefits expectations.

“We look forward to modest earnings growth as banks focus on growing top lines and costs containment,” Meristem securities research analysts, told BusinessDay.

“That said, our outlook remains modest, as we expect foreign portfolio managers (who hold strong attraction for banking stocks) to tread cautiously on the banks, ahead of 2015 general elections maneuverings, and a new regime in the CBN.”

The NSE attracted $2.85 billion from foreign portfolio investors between January and October 2013. Foreign investors were responsible for 51 percent of all flows for the period, data from the bourse show.

A further bullish case for equities is Nigeria’s $23.2 billion pension fund, which is growing at $2.5bn a year, or roughly 1 percent of GDP, per annum.

“Assuming pension funds continue to grow by $2.5 billion a year, and that roughly 20-25 percent are allocated to equities, this is a constant $600 million annual bid for equities,” said Robertson.