Foreigners Who Abandoned Lagos Stocks Have Few Reasons to Return

LAGOS (Capital Markets in Africa) – Foreigners have deserted the Lagos stock market and “hostile” domestic policies combined with a gloomy outlook for the Nigerian economy suggest there is little chance they will return soon.

The country’s benchmark stock index has slumped 16% this year in local-currency terms, the third-worst performance worldwide among 94 markets tracked by Bloomberg as of Friday. That follows an 18% retreat in 2018.

Investors have been frustrated at the slow pace of economic reform, with President Muhammadu Buhari naming a cabinet six months after winning re-election in February. A decree forcing banks to expand lending has deepened concerns about their profitability, prompting a drop of almost 20% in an index of local lenders’ stocks this year.

“Investors are clearly concerned about the hostile regulatory environment the banks are facing,” said Andrew Lapping, chief investment officer at Cape Town-based money manager Allan Gray. “It is unlikely for Nigerian stocks to attain high ratings given the economic and regulatory environment.”

Nigerian stock exchange figures show that foreigners were net sellers of Lagos equities in the eight months ended August, for a second year in a row. Poor economic growth has resulted in a lack of enthusiasm among investors, Stockholm-based Tundra Fonder AB said in a monthly report on its website.

A government proposal to increase consumption tax to 7.5% from the current 5% to support the 2020 budget may batter already faltering consumer spending, according to Ayodeji Ebo, an analyst at money manager Afrinvest in Lagos. That’s just one piece of a weak economic picture: inflation has run beyond the central bank’s 6%-9% target band for three years, while economic growth slowed for the second consecutive quarter to 1.94% in the three months through June.

It’s a combination of factors that may be enough to keep foreign investors away from the Lagos market.

“I do not expect any major improvements for the fourth quarter, nor next year,” said Zoran Milojevic, director of equity sales at Tellimer Markets Inc. in New York. “At this moment, there are better opportunities elsewhere such as in Eastern Europe, in Latin America and Asia.”

Source: Bloomberg Business News