Nigerian Stocks Now Cheapest among African Peers


Goddy Egene

A sustained bear rally in the Nigerian equities market led to decline of 1.24 per cent in the first quarter (Q1) of 2019, thus making Nigerian equities the cheapest among its peers on the continent, THISDAY has learnt.

Precisely, the Nigerian Stock Exchange (NSE) All-Share Index   went down from 31,430.50 to close Q1 at 31,041.42, while market capitalisation shed N59 billion or 0.50 per cent from N11.731 trillion to N11.672 trillion.

It was gathered that having lost over 17 per cent in 2018, political risk concerns sustained the bearish trend throughout the quarter, making the market to close on negative note. However, the sustained price decline has made Nigerian equities the cheapest among its peers on the continent.

While current valuation is in multiples of 7.9x in the Nigerian market, Egypt market has 16.6x, Kenya 11.3x, Ghana 22.9x and South Africa 17.0x.

A monthly analysis of the market performance in Q1 showed that it declined by 2.7 per cent in January, rose by 3.8 per cent in February before falling 2.1 per cent in March.

Investors’ sentiments were weak ahead of February general elections.

Investigation revealed that even after the elections, the market has remained volatile, declining 16 of the 22 days after the presidential election.

Contrary to expectations that the market would rebound after the elections and with the release of 2018 corporate earnings, shares have continued to trend downwards.

Analysts at Afrinvest West Africa said the gradual recovery in the economy was slow and may not support an overtly bullish earnings expectation in the short-term.

“Yet, we believe the market has been far compressed and remains attractive for equity investors, although we expect foreign investors to chair this effort,” they stated.

The month of March witnessed the announcement of dividends by companies for 2018, which failed to sway investors to increase their demand for stocks in the market.

But the Group Chief Executive Officer of Emerging Africa Capital Group, Mrs. Oluwatoyin Sanni, argued that the market would witness  full rebound in the second half of the year.

“The general expectation is that the first half 2019 will be more of the same as last year because investors will be playing a wait-and-see approach due to the elections.  Investors will wait to see how the elections are accepted and confirm that there will be peace in the post-election period up till May 29, which will be the day the new government will be sworn into office. So, there is hope  that second half will be better, depending again, on how well and smoothly we conduct the election depending on investor perception of the government that wins the election,” she said.

Considering the decline recorded in Q1 and expected continual volatility, some investors may become jittery remaining in the market.  But Group Chief Executive Officer of United Capital Plc, Mr. Peter Ashade, volatility is part of the capital market.

According to him, what investors need is to stick to some factors that  can always see them through the market volatility.

He said: “First, an investor who understands that the market could go up and down is best suited to make calculated decisions towards meeting investment goals. The second is having a clear objective for investing in the market. Some may invest to earn revenue, and others for capital appreciation.

“The third is to tame greed. Sticking to a clear investment objective is an effective principle for savvy investors. For instance, you can say if I get 10 per cent, I think I have made my day. I should leave. Then you discover that the share price of your investment goes up and gets to that 10 per cent goal. If you still see that the markets rally beyond that, and you decide to wait a little, then that’s greed setting in.

“In waiting a little, the market could be up 11 to 12 per cent and before you know what is going on, you are down seven per cent. So, greed also needs to be addressed in making investment decisions. In summary, you must understand the market you are playing in, stick to a clear objective for investing, and ensure that you are not greedy in terms of your investment outlook,” he said

Also, analysts at FSDH Research had said political considerations, rising global yields had increased yields on fixed income securities in Nigeria led to a reallocation of portfolio away from equities market, hence the decline recorded in the market.

But looking into February, FSDH Research said they expected some positive performance.

“We expect savvy investors to take strategic positions in the months leading to expected recovery in second quarter of 2019. Despite the overall decline, we have seen pockets of  positioning over the months and except to see further examples,” they said.