Analysts believe investors shouldn’t bet against equities now – despite the broad based rally – as the bull-market has room to run.
“Why must investors look at Nigeria? Because from Feb 2014, we should see that Nigeria is the biggest economy in Africa at over $400 billion, and because it has one of the best reform teams in any country globally,” Charles Robertson, global chief economist at Renaissance Capital, said in an emailed note, sent on Monday, Jan.6.
“Electricity reform is working. Growth of 7 percent a year, since 2000, means Nigeria’s GDP is on course to be bigger than 2012 Japan, at over $5 trillion in today’s money by 2050.”
The NSE ASI has risen 109.3 percent since its February 2009 low of 19,803.6 points to 41,450 points last Friday. Contd..
Nigerian equities will from May 2014 make up 20 percent of the MSCI frontier markets index (the key benchmark for equity investors) from 14 percent of the benchmark today.
This should lead to a further bid for Nigerian equities from global fund managers who have exposure to frontier markets.
The NSE’s equity market capitalisation of N13.2 trillion ($82 billion), is only equivalent to 31 percent of Nigeria’s $262 billion economy at year end 2012, meaning the stock market has room to grow before it truly reflects the economic activities that are taking place within the country.
Jim O’Neill who coined the term BRIC in 2001, as potential powerhouses of the world economy, has now identified the “MINT” countries – Mexico, Indonesia, Nigeria and Turkey – as emerging economic giants.
“The creativity in Nigeria is so easy to get enthused about, and I returned from a recent visit full of excitement about different investment opportunities,” wrote O’Neill in a January 6 article.
Few stocks were left behind in last year’s advance as most of the blue chip names and banks that make up about 90 percent of capitalisation in the NSE-ASI rose.
All the major sector indices such as the NSE: Banking, Consumer goods, Oil and gas, and Industrial, index gained at least 20 percent or more last year, according to data from the bourse.
Growing corporate profits, dividends and current-account surpluses have made frontier countries like Nigeria resilient to investor concern that the U.S. Federal Reserve will reduce monetary stimulus.
“We are very, very optimistic for 2014 – we are expecting average growth of 30 percent group wide,” said Aliko Dangote, Africa’s richest man and chairman of Dangote Cement, as he outlined plans in an interview to invest $4.7 billion to finish cement projects in about 18 countries, including Nigeria.
Analysts at Meristem Securities Limited, project that First quarter (Q1) returns will be driven largely by corporate earnings scorecards and dividend/ bonus benefits expectations.
“We look forward to modest earnings growth as banks focus on growing top lines and costs containment,” Meristem securities research analysts, said in a response to BusinessDay questions.
“That said, our outlook remains modest, as we expect foreign portfolio managers (who hold strong attraction for banking stocks) to tread cautiously on the banks, ahead of 2015 general elections maneuverings, and a new regime in the CBN.”
The NSE attracted N456.18 billion ($2.85 billion) from foreign portfolio investors between January and October 2013. Foreign investors were responsible for 51.43 percent of all flows for the period, data from the bourse show.
A further bullish case for equities is Nigeria’s N3.7 trillion ($23.2 billion) pension fund, which is growing at $2.5bn a year, or roughly 1 percent of GDP, per annum.
“Assuming pension funds continue to grow by $2.5bn (N400 billion) a year, and that roughly 20-25 percent are allocated to equities, this is a constant $600mn (N96 billion) annual bid for equities,” said Robertson.
By: PATRICK ATUANYA
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