BusinessDay... the voice of business: Renaissance Capital report underscores capital market liquidity

Renaissance Capital report underscores capital market liquidity
================================================================================
Kirk Leigh on 11 May, 2008 02:00:00
 
Inspite of the hues andcries rocking America and Europe and also to a large
extent, China and the Asian Tigers on account of the sub-prime crises, Nigeria,
as the second largest economy in sub-Sahara Africa, is afterall not on its knees
over the crises.
That the country is somewhat immuned from the effects of the sub-prime saga,
not a few international market outlook experts note, is partially explained by
the low level of foreign investment in the local markets.
Renaissance Capital, a private equity firm, for instance had noted that while
the global index MSCI EM (for emerging markets) slumped 18 percent as a direct
hit from the sub-prime torpedo and the S&P 500 Index sank eight percent, the
Nigerian Stock Exchange (NSE) Index buoyed 13 percent.
Renaissance says, “the Nigerian equity market, like the majority of equity
markets in SSA, has been well insulated from the global fallout of the sub-prime
meltdown.”
This finding is contained in Renaissance new report on Nigeria. the research
finds that the NSE has risen 13 percent in the first quarter and still looks
very attractive to its international peers trading on a Dec 2008E P/E of 12.9
times, underwritten by earnings growth of 53 percent.
By implication, this means that an investor in the Nigerian equity market can
make more than 12 times the cost of buying the equity and has potential to grow
more than half its current value in the course of this financial year.
The report says that of at the end of Dec 2007, the total market turnover of
the NSE was $15.8bn and that market turnover has increased 364.7 percent since
2006 ($3.4bn or N402.9 bn)) and as a percentage of market capitalisation, has
risen from 6.2 percent in 2000 to 19.2 percent in 2007. This, it says, is a
significant improvement and highlights the rising level of liquidity in the
Nigerian equity market.
What however comes as a surprise to most, Renaissance notes, is that the market
performance has not been foreign-driven. The NSE’s latest vital statistics
release highlighted the lack of foreign investment in the market. In 2007, total
foreign involvement, despite increasing significantly, was a mere 14 percent
($2.2bn or N260.7 bn) of the total volume traded on the market ($15.8bnor N1.87
trillion); the majority of this was in the primary market. This helps to
partially explain the lack of correlation between Nigeria and the rest of the
world as foreign redemptions are less likely to negatively impact the market.
Beginning in late 2006, the US sub-prime mortgage industry entered what many
observers have begun to refer to as a meltdown. A steep rise in the rate of
sub-prime mortgage defaults and foreclosures has caused more than 100 sub-prime
mortgage-lenders to fail or file for bankruptcy.
most prominently New Century Financial Corporation, previously the nation’s
second biggest sub-prime lender. The failure of these companies has caused
prices in the $6.5 trillion mortgage backed securities market to collapse,
threatening broader impacts on the U.S. housing market and economy as a whole.
The crisis is ongoing and has received considerable attention from the U.S.
media and from lawmakers.