Over 2018, many investors withdrew from Emerging and Frontier Markets – Nigeria inclusive – and bought more assets in the US due to the spike in US bond yields, as well as the appreciating dollar.
Worsened by election uncertainty, the Nigerian equity market saw a net foreign outflow to the tune of -N66.2bn over 2018, compared to net foreign inflows of N336.9bn in 2017.
Against the backdrop of a better balance of risk this year and considering the extreme valuation differences between Nigeria (9.2x) and the rest of the world (FM: 11.5x, EM: 12.4x and the world: 16.9x), 2019 should see more funds flow back to Nigeria – especially after elections. Nevertheless, we expect any potential upside to be capped because the structural reform follow-through that can put Nigeria on the path to a more sustainable long-term growth is missing. A look at Nigeria’s performance from the global market low in March 2009 to 2018, shows that the All-Share Index has risen by a paltry 40.5% (compared to Egypt’s 324.7%, South Africa’s 174.1%, and Kenya’s 166.7%).
Apart from election uncertainty, which has been worsened by the recent postponement, unless the badly needed market-friendly reforms that can spur sustainable growth in Nigeria are implemented, there would always be a technical cap to any cyclically-driven tailwind in the Nigerian equity market