The Lagos all-share index (NSEASI) was among the best performing indices globally in 2017 in local currency unit terms, and far outshone Nairobi (NSE 20) and Johannesburg (all-share). It gained 42.3% over the calendar year, compared with Jo’burg’s 17.5% and Nairobi’s 16.5%. The index was still in negative territory ytd in early May but then surged. Many offshore investors warmed to the CBN’s new fx window for investors and exporters (NAFEX). Above all, they felt comfortable that they could exit the market when they chose.
The surge last year took place in a fairly thin market. Daily turnover averaged just US$15.6m equivalent at the CBN rate, compared with US$9.5m in 2016 when the NSEASI retreated by -6.2%. Foreign investors’ share of transactions picked up once NAFEX developed some momentum, reaching 53% and 54% in October and November respectively.
The Nigerian market in 2017 enjoyed a lift from improved macro data and newsflow. The economy emerged from recession, oil production recovered from mid-year, reserves accumulation was impressive and the FGN successfully tapped the Eurobond market twice.
Further, FGN bond yields have narrowed by +/- 300bps in the past four months, raising the possibility of a marked shift by domestic institutions to the equities market.
We can see the impact of politics in the chart. Jo’burg enjoyed an uptick in December after Cyril Ramaphosa won the election for the ANC leadership whereas Nairobi took a hit from Kenya’s lengthy, re-run presidential elections. In Nigeria’s run-up to elections in February 2019, we distinguish between “regular” polls and those that are unsettling, challenged in the courts and so close as to create the risk of violence. Relatively smooth elections without ideological issues should not upset the market unduly.