12 °c
London
Wednesday, March 22, 2023
No Result
View All Result
FurtherAfrica
  • Countries
    • Angola
    • Botswana
    • Cape Verde
    • DRC
    • Eswatini
    • Ethiopia
    • Kenya
    • Malawi
    • Mauritius
    • Mozambique
    • Namibia
    • Nigeria
    • Rwanda
    • South Africa
    • Tanzania
    • Uganda
    • Zambia
    • Zimbabwe
  • Interviews
  • Understanding
  • Videos
  • Travel
  • Weekend
  • About
FurtherAfrica
  • Countries
    • Angola
    • Botswana
    • Cape Verde
    • DRC
    • Eswatini
    • Ethiopia
    • Kenya
    • Malawi
    • Mauritius
    • Mozambique
    • Namibia
    • Nigeria
    • Rwanda
    • South Africa
    • Tanzania
    • Uganda
    • Zambia
    • Zimbabwe
  • Interviews
  • Understanding
  • Videos
  • Travel
  • Weekend
  • About
No Result
View All Result
FurtherAfrica
No Result
View All Result
Home Africa

Investors shun cheap stocks in Nigeria as risks pile up

Staff by Staff
August 14, 2020
in Africa, Banking, Capital Markets, Currency, FDI, Finance, Investing
Reading Time: 3 mins read
847 17
0
Share via QRWhatsappShare on FacebookShare on TwitterLinkedInPinteresteMail

Nigerian stocks are signalling better returns than less-risky local debt markets, where rates are at the lowest in a decade. Yet investors are shunning the opportunity, wary of a mix of domestic and external threats.

Trading in equities on the Lagos stock exchange slumped 57% in June from a year earlier, figures from the bourse show. Pension fund managers aren’t favouring the market either: just 4.9% of 10.8 trillion naira (US$28B) in retirement savings assets is invested in domestic equities, compared with 5.7% in January and an average permitted ceiling of 15%, according to pensions commission data. The benchmark Nigerian stock index is heading for an annual decline for the fifth time in the past six years.

Declining Dealings

A dire shortage of dollars and a lack of policy reform is keeping foreign investors on the sidelines. Locals are avoiding the market given the poor outlook for the economy because of the Covid-19 pandemic and the effect of lower oil prices on Africa’s largest producer of crude. Nigerians are also nervous about potential shocks from the naira exchange rate, Simon Kitchen, head of macro strategy at Cairo-based EFG Hermes Research, said in an Aug. 6 note to clients.

Goldman Sachs Group Inc. this week said a significant devaluation of the naira is likely in 12 to 18 months to stabilize Nigeria’s external accounts. An exchange rate of 500-550 per dollar should bring about the desired balance, according to Goldman economists, compared with a current rate of about 407. The Nigerian central bank on Aug. 7 reduced its official rate by 5.3% to reflect depreciation during the previous month.

Also read: Nigeria’s Access Bank buys loss-making Zambian Cavmont

Based on 12-month forward price-to-earnings estimates, Nigerian stocks are less expensive than peers in South Africa, Kenya and members of MSCI’s frontier emerging-market index. But there is more than just cheap-looking shares for investors to consider, and other markets remain more appealing, according to Kitchen at EFG Hermes.

“Low valuation multiples are no guarantee of decent medium-term returns in Nigeria, compared with Pakistan where the interest rate policy is clearer and which has a far stronger correlation between valuation and future returns,” he said.

Nigerian stocks are least expensive compared to peers
The risk to non-residents of not being able to repatriate funds due to foreign currency constraints continues to cast a shadow over the Lagos equity market, said Ayodele Salami, chief investment officer at Duet Group in London.

“To keep allocating additional resources in that environment would demonstrate an imprudent approach to risk management,” Salami said by phone.

The multiplicity of exchange rates in Africa’s biggest economy remains a bugbear for international equity investors. While Nigeria’s central bank has said it is committed to merging the rates, there is little to suggest that a shift to a unified naira level is imminent, according to EFG Hermes, which retains an underweight view on Nigeria.

“Nigerian authorities have shown a greater willingness than frontier, emerging-markets peers to accept long periods of low growth and distorted market signals,” Kitchen said. “The effect is that Nigeria markets can stay cheap for longer, putting off all but the most patient investors — foreigners can generate better returns elsewhere.”

The Lagos benchmark index rose for a second day on Thursday, gaining 0.4% to the highest since June 9.

Source: Bloomberg

Related

Tags: Duet GroupEFG HermesGoldman Sachs GroupInvestors shun cheap stocks in Nigeria as risks pile upMSCIMSCI Emerging Markets IndexNigeriaNigerian nairaNigerian Stock Exchangestock marketStocksнигерияنيجيرياナイジェリア尼日利亚
ScanSendShare346Tweet216Share60Pin78Send
Staff

Staff

Related Posts

Events

13th Orange Social Venture Award applications now open

by TechGist Africa
March 22, 2023
Mining

Morupule Coal Mine Letshego commits US$165M to Botswana SMEs

by The Exchange
March 22, 2023
5 Ways Mauritania can benefit from its gas resources
Energy

5 Ways Mauritania can benefit from its gas resources

by Fabio Scala
March 22, 2023
Climate

Sundale Schreiber open global markets for South African dairy

by Farmers Review Africa
March 22, 2023
Climate

ENGIE and CarbonClear to finance the access to energy challenge in Africa through the Voluntary Carbon Market

by Rafael Carvalho
March 22, 2023
Platform Africa 2023
 
Mozambique eVisa
 
MozParks
 

Translate this page

Read the Latest

Events

13th Orange Social Venture Award applications now open

by TechGist Africa
March 22, 2023
0

The Orange Social Venture Award is now accepting applications for the 2023 edition from startups in Africa and the Middle...

Read more

Morupule Coal Mine Letshego commits US$165M to Botswana SMEs

March 22, 2023
5 Ways Mauritania can benefit from its gas resources

5 Ways Mauritania can benefit from its gas resources

March 22, 2023

Sundale Schreiber open global markets for South African dairy

March 22, 2023

ENGIE and CarbonClear to finance the access to energy challenge in Africa through the Voluntary Carbon Market

March 22, 2023

FurtherAfrica Partners Network

The Exchange Club of Mozambique Taarifa Rwanda
TechGist Africa Africa Oil & Power Farmers Review Africa
Tanzania Invest Zambia Invest See Africa Today
Africa Global Funds Novafrica CrudeMix Africa
Harambee Africa Botswana unplugged Financial Insights Zambia
O Económico Digilogic Africa Web3Africa

Subscribe to FurtherAfrica

Enter your email address to receive new articles on your email.

Join 100,058 other subscribers.
FurtherAfrica

© 2021 FurtherMarkets

FurtherAfrica is a FurtherMarkets Limited platform

  • Countries
  • Interviews
  • Understanding
  • Videos
  • Travel
  • Weekend
  • About

Follow Us

No Result
View All Result
  • Countries
    • Angola
    • Botswana
    • Cape Verde
    • DRC
    • Eswatini
    • Ethiopia
    • Kenya
    • Malawi
    • Mauritius
    • Mozambique
    • Namibia
    • Nigeria
    • Rwanda
    • South Africa
    • Tanzania
    • Uganda
    • Zambia
    • Zimbabwe
  • Interviews
  • Understanding
  • Videos
  • Travel
  • Weekend
  • About

© 2021 FurtherMarkets

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.
Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?