January 29, 2018

Nigeria’s stocks have been among the world’s best-performers in the past four months, and foreign investors are a big reason for that, Bloomberg reported on Monday.

The New York-based financial software, data, and media company, said net foreign inflows to Nigerian equities totaled 337 billion naira ($940 million) last year, the first time flows have been positive since at least 2013.

It said December 2017 was the best month since Bloomberg started compiling data at the beginning of 2014, with net inflows of 140 billion naira, signaling a switch in sentiment toward equities in Africa’s biggest oil producer.

The finance media company said foreign investors were heavy buyers of Nigerian shares last year.

“Nigerian equities have gained in allure for international traders, thanks to the rise in Brent crude prices to around 70 dollars a barrel and an easing of dollar shortages, which are helping Africa’s largest economy recover from its worst slump in 25 years.

“They’re also attracted by what remain among the cheapest valuations on the continent.

“The turnaround has seen investors pile into the New York-based Global X MSCI Nigeria ETF this year, too.

“That’s increased the exchange-traded fund’s market capitalisation to almost $100 million, triple the size of a year ago,” Bloomberg said.

The world-beating rally in Nigerian stocks might not be over yet, noting that the main equity index in Africa’s biggest economy had surged 12 per cent in the first two weeks this year in dollar terms, the most among 96 major bourses tracked by Bloomberg, pushing it to the highest level since 2008.

It said the advance would probably be sustained thanks to rising prices for oil, Nigeria’s main export, and as investors look to increase their holdings of what remained among the cheapest stocks in Africa.

“Still, there are some warning signs. The 120-day correlation between Nigerian stocks and Brent crude is now around the highest in two years. If oil prices reverse their 45 per cent climb since June, Nigerian assets could take a hit.

“That’s one reason HSBC Holdings Plc has a negative outlook on the stocks. The U.K. bank also says Nigeria will have to free its currency further.

“While the central bank eased some capital controls last year and opened a trading window for foreign portfolio investors, it continues to operate several exchange rates.”

It warned, however, that Nigeria’s multiple exchange rate system was likely to remain a key drag, keeping long-term investors on the side lines.