Lagos bourse, the weakest link, says FBNQuest research

Lagos and Nairobi stock markets have declined year-to-date (ytd) by -20.5% and -12.1% respectively, whereas the far more liquid Johannesburg Stock Exchange has gained 5.8% ytd.

Lagos has been very volatile this year. It shed -8.4% in the first quarter, then increased by 5.4% in Q2 but declined again to 8.6% in Q3.

Foreign investor appetite for Nigeria remains low mainly due to fx challenges stemming from subdued global oil prices. Rate cuts (both MPR and CRR) by the MPC at its last meeting were expected to boost liquidity, at least in the near term. However, there has been little or no positive reaction by the market.

The decline in oil prices ytd is 24%; this broadly mirrors the decline in the Lagos bourse. Subdued oil prices have weighed negatively on oil-related stocks such as Seplat and Mobil Oil Nigeria.

In Q3 2015, GDP growth was 2.8% y/y, well below the 6.2% y/y posted in Q3 2014. The slowdown in growth has put a strain on the performance of listed manufacturing companies.

There has been a noticeable slowdown in top-line (sales) growth of the listed companies we cover.

Banks are also feeling the impact. Having started the year guiding to 10-20% loan growth for 2015, several have revised down their guidance towards the 10% mark. We forecast earnings per share for banks under our coverage to decline by about -7% y/y in 2015 on average.       

New listings on the exchange would be welcomed by investors as these would improve its appeal as well as give a better representation of the economy.

Whether listings will feature in 2016 is difficult to say. However, clarity on the government’s fiscal position could prove to be a positive catalyst.