Which Sectors Will Determine Whether Nigerian Equities Can Remain In Play? 1

Nigerian equities have turned in a strong ascent thus far in 2017 with the MSCI Nigeria Index up 28% in YTD until June 13. However, its performance in the past three months has been decidedly more prominent as shown by the movement in the Nigerian Stock Exchange Main-Board Index in the graph below.

Let’s consider the Global X MSCI Nigeria ETF (NGE), which tracks the MSCI All Nigeria Select 25/50 Index, as a surrogate for Nigerian equities in order to see what has contributed to the performance.

The fund is invested into just five sectors: consumer staples, energy, financials, materials, and utilities. Financials and staples have been the highest contributing sectors to the fund in YTD 2017, in that order.

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Though the order has sustained through the performance over the past three months as well, staples have seen a marked improvement, leading to a notable increase in contribution whereas financials have seen a slight dip. Nigerian Breweries – the largest holding of the NGE – leads staples, followed by Nestle Nigeria and Guinness Nigeria.

The fundamentals which have led to the increase in Nigerian equities has some money managers and analysts positive on future prospects.

Fund managers and analysts positive on Nigeria

The Wall Street Journal quoted Nick Ndiritu, a portfolio manager for South Africa-based fund manager Allan Gray, saying that the country may have recently passed the “point of maximum pessimism.”

The Journal also quoted Chris Becker, a researcher at Investec Bank in South Africa, saying “We remain optimistic that the worst for the business cycle and naira may be behind us, and look forward to a growth recovery in the next few years.” The firm expects the trade surplus to which Nigeria has recently returned, to help increase the dollar liquidity in the country.

Another factor that has contributed to the recent rally is the rise in crude oil production. Let’s look at this aspect in the next article.

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