Why Fund Managers Are Approaching Nigeria With Caution

Nigeria: at the bottom of the list

Nigeria (NGE) appears at the bottom of many fund managers’ list of investable frontier markets for 2017. The oil-rich, yet recession-hit African (EZA) (GAF) economy still needs to do much more to instill confidence among investors towards its country. For many, Nigeria has usually been long on plans, but short on implementation.

Bond sales notwithstanding, Nigeria presents a challenging investment environment

Even after two successful bond sales, a $1 billion Eurobond sale in February and a $500 million issue in March, Nigeria continues to present a very challenging environment to investors. From the oil price decline to militant attacks by the Niger Delta Avengers to Boko Haram insurgencies, the country has more than a few issues to deal with presently.

Earnings expected to be weak

Currently, we’re seeing many fund managers advising approaching Nigeria with caution. Frontera recently spoke with James Bannan, frontier markets’ (FRN) (FM) fund manager at Coeli Asset Management who believes Nigeria is on of the worst frontier markets to be invested in currently, as he expects “earnings would be weak.” Coeli Asset Management has very limited exposure to this market. They’re invested in Guaranty Trust Bank (LON: GRTB) through its London-traded GDR. The GDR is up 12.8% YTD (as of April 12).

Some asset managers are directionally positive on Nigeria

Acadian Asset Management sees Nigeria as “the most liquid and largest frontier market within Africa.” “The economy has been distressed over the recent period in terms of rising political and economic risks, and currency and capital challenges, there have been very modest changes,” and “directionally Acadian is positive on Nigeria” said Asha Mehta, Senior Vice President and Portfolio Manager at Acadian Asset Management. “The market is trading at a material discount to frontier markets broadly,” Asha told Frontera.

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