Fine start by Lagos, and now a lack of direction

The Lagos all-share index (NSEASI) far outshone both Nairobi (NSE 20) and Johannesburg (all-share) in 2017 in local currency unit terms, and remains ahead ytd this year. It has gained 6.0% on that basis, compared with 2.4% in Nairobi and a decline of -4.7% in Jo’burg. Having peaked on 19 January at 17.9% ytd, the index has since lost much of the sparkle. Daily turnover has averaged US$22.1m ytd (at the interbank/official rate), which compares with US$6.6m in the year-earlier period before the opening of the investors’ and exporters window (NAFEX).                                                                                                      

  • NAFEX has proved transformative for the offshore investor. That said, the trend in turnover this year has been downward: it averaged US$29.3m equivalent in January.
  • Their share of turnover on the exchange was around 40% in January and February, yet foreign investors’ transactions brought a net inflow of N23.7bn in both months combined. In the same period of 2017 and so before the substantive fx reforms, there was a net outflow of N30.3bn.
  • We suspect that much of the good news is already reflected in valuations; the improvement in macro data, the recovery of oil revenues, the impressive reserves accumulation and the success of the FGN in twice tapping the Eurobond market.
  • Further, FGN bond yields have narrowed by +/- 300bps in the past six months, raising the possibility of a marked shift in asset allocation by domestic institutions. For now, however, this remains a possibility.

Sources: Nigerian Stock Exchange; Nairobi Stock Exchange; Bloomberg; FBNQuest Capital Research
  • The chart suggests that the Ramaphosa bounce in South Africa has come to an end. Nigeria has its own elections coming: our view is that investors are not worried as long as they continue to feel that the polls will be decisive, and not followed by violence and endless judicial challenges.

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