Nigeria Stock Exchange surges past Nairobi, J’burg in market gains on back of NAFEX stimulus

Gains in the past two months have placed the Lagos-based Nigeria Stock Exchange (NSE) firmly ahead of peers in sub-Saharan Africa, the Nairobi and Johannesburg stock exchanges, according to FBNQuest Research.

“Our occasional look at three stock market indices in sub-Saharan Africa (SSA) places Lagos well ahead of both Nairobi (NSE 20) and Johannesburg (all-share),” FBNQuest said.

The benchmark index of the NSE has gained 22.7 percent year-to-date, compared with 14.0 percent for Nairobi and 4.5 percent for Jo’burg.

The performance of the NSE index is remarkable given that it was still in negative territory year-to-date as recently as May 9 this year.

The Nigerian equities market index recent surge has been largely attributed to the launch by the CBN of a new foreign exchange window for investors and exporters (NAFEX) in late April, which provided foreign exchange liquidity in the market.

“In our excitement at this surge in little more than two months, we should not lose sight of the low trading volumes. Turnover YTD has averaged US$9.9m equivalent at the interbank rate. This compares with US$11.7m in the similar period of 2016 although we have to allow for the exchange-rate ‘liberalization’ in mid-June,” they noted while agreeing that turnover has picked up since the launch of NAFEX but from a low base.

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The influence of NAFEX though would be really ascertained when the second quarter report of the market comes out.

“A telling factor will be the imminent Q2 reporting season, for which we have high hopes (particularly for the banks),” the FBNQuest analysts averred.

The NSE’s latest monthly report shows that foreign participation was 46.3 percent of turnover in May, and 46.0 percent year-to-date albeit some evidence in the May data indicating domestic institutions followed offshore investors into the market.

“We are at a potential watershed. If the Q2 results meet our expectations, notably for the most-traded household names, we could see buying by the large offshore investment houses, which have been deterred by the workings of NAFEX,” they said.

The analysts explained the inclusion of Jo’burg in their comparison, that it is easily the largest bourse in sub-Saharan Africa in terms of market capitalization.

They, however, pointed out some setbacks for investors in South Africa, which include uncertainty ahead of the contest for leadership of the ruling African National Congress, the appointment of a relative novice to the post of finance minister and an orchestrated attempt to challenge the autonomy of the central bank.