February 11, 2019

A better backdrop for SSA stock markets

The three stock markets we track in sub-Saharan Africa (SSA) are all in positive territory ytd, Lagos and Jo’burg marginally so (see chart). The stronger performance of Nairobi may be explained by a ‘sell Nigeria, buy Kenya’ trade that we understand to have been popular this year with the offshore community. Clear signals that the normalization of US monetary policy is set to slow this year have been helpful to the frontier and emerging market space. The Chinese economy is slowing although the authorities are working to maintain the growth momentum.

                                                                                                                  

  • The NSE all-share index (NSEASI), which opened 2018 with a surge, offers an attractive entry point for the tier one banks. Book values for these stocks compare favourably with other markets. For consumer goods stocks, investors may be waiting for proof of the rebuilding of household budgets.

  • We see a relief rally in Lagos on the completion of the imminent elections (provided that the outcome is conclusive, and therefore uncontested). While we have clearly demonstrated that recent elections in Nigeria do not mean a loss of macroeconomic discipline, it remains the case that many portfolio investors like to sit on the sidelines until the process is over.
Performance of three SSA market indices (% chg ytd, local currency units)

 

Sources: Nigerian Stock Exchange; Nairobi Stock Exchange; Bloomberg; FBNQuest Research
  • There was such a brief rally after the presidential poll in March 2015 of more than 12 percentage points in just two days, which we attribute to the novelty factor (the incumbent had lost) as well as the indications of a peaceful handover.
  • The NSEASI would benefit above all from sizeable new listings to address the acute sectoral imbalances and compensate for the trend whereby several multinationals are increasing their stake in their listed Nigerian subsidiaries. Telecoms, which accounted for 8.7% of GDP in 2017, is not represented at all on the exchange so we await news from MTN Nigeria, the largest non-oil company on the basis of turnover, on its planned launch.