Foreign investors fleeing Nigeria as oil prices plunge are leaving stocks undervalued in Africa’s biggest economy, the bourse’s chief executive said.
The benchmark indexâs 18 percent decline so far this year isn’t justified by economic changes and as a result Nigerian equities are “effectively on sale,” Oscar Onyema said in an interview yesterday at a conference in Diani, Kenya. “The fundamentals demand higher valuations,” he said.
Nigerian stocks have 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 percent this year and next, according to a Bloomberg survey of economists.
“The local institutional investors are net buyers at the moment,” said Onyema. “They’re buying and their way of looking at it is that the prices we’re seeing today are not justified by the fundamentals.”
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 polarizing 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 said. “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 has weakened to a record low of 178 per dollar this month because of the collapse in the price of oil, which accounts for more than two-thirds of government revenue. The currency was down 1.3 percent to 176.32 per dollar at 10:07 a.m. in Lagos, the commercial capital.
“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.”
The Nigerian central bank meets to set interest rates today, with three of nine economists surveyed by Bloomberg expecting the bank to raise the benchmark rate from 12 percent.
Onyema said the Nigerian stock exchange is seeking to boost listings and talking to so-called marginal oil field operators eager to match the success of Seplat Petroleum Development Co. (SEPLAT)’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.