Fine start by Lagos, and now a lack of direction – FBNQuest Research

by | April 19, 2018 12:21 am



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 year-to-date (Ytd) this year.

It has gained 6percent on that basis, compared with 2.4percent in Nairobi and a decline of -4.7percent in Jo’burg. Having peaked on 19 January at 17.9percent ytd, the index has since lost much of the sparkle. Daily turnover has averaged $22.1million ytd (at the interbank/official rate), which compares with $6.6million 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 $29.3million equivalent in January.

Their share of turnover on the exchange was around 40percent in January and February, yet foreign investors’ transactions brought a net inflow of N23.7billion in both months combined. In the same period of 2017 and so before the substantive FX reforms, there was a net outflow of N30.3billion.

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.

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.