Limits to the comparison with Egypt

Our periodic look at three stock market indices in sub-Saharan Africa (SSA) places Nigeria between Jo’burg and Nairobi. The NSEASI has lost-4.8% ytd, compared with a 3.0% gain for Jo’burg and a -10.0% retreat by Nairobi. Reasons for the poor performance are not hard to find. The economy remains in recession and will grow only marginally this year. The fall in the oil price has indirectly squeezed households and so dampened sales by consumer goods companies. It has also damaged the balance sheets of many banks as loans to the industry have turned sour.

Turnover on the NSEASI has averaged a pitiful US$7.1m. It is only slightly ahead of Nairobi, and would be lower were it not for large volumes traded in a prominent oil company on 24 January.

The Nigerian pension funds are reluctant to add to their exposure to equities while foreign portfolio investors (FPIs) have to join a long queue if they want to repatriate sale proceeds. The NSE data show that foreign investors accounted for 45% of all trades in 2016. However, these trades would overwhelmingly have been the restructuring of existing portfolios.

Outside SSA, the market of choice for FPIs since October has been Egypt, where the authorities devalued the exchange rate, started moves towards a floating regime, hiked benchmark interest rates and secured a three-year credit of about US$12bn with the IMF. In local currency terms, the index (EGX30) has soared by 53.6% since end-October.


Limits to the comparison with Egypt Sources: Nigerian Stock Exchange; Nairobi Stock Exchange; Bloomberg; FBNQuest Research

Any read-across to Nigeria should be cautious. The FGN is loath to accept IMF loans. Further, the monetary authorities are unlikely in our view to adopt a free float, not least because they have no experience of such a regime.

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