Foreign investors fleeing Nigeria as oil prices plunge are leaving stocks undervalued in Africa’s biggest economy, the bourse’s chief executive officer, Mr. Oscar Onyema has said.
The benchmark index’s 18 per cent decline this year isn’t justified by economic changes and as a result Nigerian equities are “effectively on sale,” Oscar Onyema said in an interview with Bloomberg in Diani, Kenya.
“The fundamentals demand higher valuations.”
Nigerian stocks dropped as crude slid into a bear market and the central bank eroded reserves to support the currency, which fell to a record low this month.
Nigeria is Africa’s biggest oil producer, and its $520 billion economy is forecast to grow 6.5 per cent this year and next, according to a Bloomberg survey of economists.
“The local institutional investors are net buyers at the moment,” Onyema said, adding that “they are buying and their way of looking at it is that the prices we’re seeing today are not justified by the fundamentals.”
The Nigeria Stock Exchange (NSE) All Share Index closed at 34,111.85 basis points yesterday, while the NSE market capitalisation closed at N11.263 trillion. In addition, as 19 shares increased, six fell and 170 were unchanged.
PZ Cussons Nigeria Plc, a soap maker, was the bigger gainer, climbing 4.9 percent.
Foreigners will probably remain wary of the Nigerian market until presidential elections in February, Onyema said.
There is pent-up demand for stocks, though investors won’t commit funds until they have clarity on policy and security under the new administration, he said.
An Islamist insurgency in northern Nigeria and a campaign for the presidency pitting candidates from the mainly Muslim north against an incumbent from the largely Christian south point to “a very perilous contest whose results may also be disputed,” the Brussels-based International Crisis Group said in a report last week.
“We’re in a political cycle right now and foreign investors want to see what the outcome is,” Onyema added.
“They want to get certainty about the security situation and they also want to see the package of measures that the fiscal and monetary authorities will take in addressing the shocks that we’ve seen.”
The naira had weakened to a record low of N178 to a dollar this month because of the collapse in the price of oil, which accounts for more than two-thirds of government revenue.
The Central Bank of Nigeria (CBN) yesterday devalued the naira by moving the midpoint from N155 to a dollar to N168 to a dollar. It also widened the band around the midpoint by 200 basis point from + or – 3 per cent to + or -5 per cent. Similarly, it increased the monetary policy rate (MPR) from 12 per cent to 13 per cent and also raised private sector cash reserve ratio (CRR) from 15 per cent to 20 per cent.
“When you look at OPEC countries, they’re all feeling the sweat, but Nigeria tends to be more pronounced, because of some of the perceived weaknesses in our buffers such as the level of foreign reserves and the ability of the central bank to defend the currency,” Onyema said.
“I have confidence in the central bank’s ability to provide a currency that has stability.”
Onyema said the NSE is seeking to boost listings and talking to so-called marginal oil field operators eager to match the success of Seplat Petroleum Development Company’s initial public offering in April, Nigeria’s first since 2008.
“The marginal field operators have a real opportunity to participate in our market, especially given the success that Seplat has shown,” Onyema said.
Marginal field operators in Nigeria include Bayelsa Oil Company, Platform Petroleum Limited and Sahara Energy Field Limited.—-ThisDay