Lagos Stock Rally Shows How Search for Yield Outweighs Oil Moves

LAGOS (Capital Markets in Africa) – The best rally in Nigerian stocks since mid-2017 is underscoring how much more attention investors in Africa’s largest oil producers are paying to the quest for returns rather than worrying about the price of crude.

The Nigerian Stock Exchange All Share Index edged 0.1% higher on Friday, bringing its advance this week to more than 9%. The gains, the best performance by any of the more than 90 global benchmarks tracked by Bloomberg over the five days, are more striking when compared to the 6% retreat in crude oil as Middle East tensions ebb.

Investors are turning to stocks in the continent’s most-populous nation as they flee a slump in fixed-income rates. Yields on Nigerian Treasury bills have dropped to a decade low since the central bank in October restricted the purchase of its highest-yielding, short-term securities to banks, barring individuals and other institutions. Stocks have risen 10 days in a row, the longest such sequence since July 2017.

“You might see the pension fund managers increasing their exposure to equities and that might result in a technical performance that is quite positive, especially now in the first quarter as the banks start to announce dividends,” Ronak Gadhia, sub-Saharan African banks director at Cairo-based EFG Hermes, said by email.

Low-interest rates are improving the potential investors see for better earnings and stock performance, said Ayodeji Ebo, managing director at Afrinvest Securities in Lagos. “Many fast-moving-consumer-goods companies are refinancing their loans in the low-interest environment, and that is going to be positive for their margins.”

And, after declines of 15% last year and 18% in 2018, equities in Nigeria may have reached enticing valuation levels that will support sentiment beyond the tearaway start to January. There is at least one sign that investors betting on further gains should be cautious, though: the benchmark index’s 14-day relative strength index has climbed to almost 86, well beyond the level of 70 that some technical analysts view as a sign the gains may be overdone.