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Fund Managers Shun Cheap Nigerian Stocks as Discount to MSCI Widens

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Nigerian Stocks are cheap but Fund Managers are largely not impressed or looking to buy aggressively, leading to a widening gulf between domestic equities and the Morgan Stanley Capital International (MSCI) Frontier Markets index.

The Nigerian Stock Exchange (NSE) was one of the worst performing Frontier Markets in 2019 after the All-Share Index declined by 14.6 percent.

As of the end of June 2020, Nigeria was the 4th largest constituent in the MSCI Frontier Markets Index with a weighting of about 5.18 percent, behind Kuwait (37.76%), Vietnam (15.24%), and Morocco (9.37%).

Over a 3-year period the NSE-ASI has returned -21 percent compared to a -8 percent return for the MSCI Index as a whole.

The MSCI Index has a price to earnings (PE) ratio of 12X earnings compared to the NSE-ASI at 8X.

Large cap constituents of the index such as MTN Nigeria, Dangote Cement and BUA Cement which should be seeing solid fund flows have not seen that materialize as a result of several factors chief of which is the FX rate uncertainty in the country, analysts told MoneyCentral.

“Foreign funds think it is not worth putting money in Nigeria at the moment due to the low foreign exchange liquidity and large spread between the parallel and I& E windows,” one domestic fund manager told MoneyCentral.

“Trading values in Nigeria are also too low for now.”

Foreign activity on the NSE has been dwindling over the past year, according to data from the local bourse.

Total domestic transactions increased in May 2020 by 11.15 percent from N75.49 billion in April, latest data from the NSE show.

However, total foreign transactions decreased by 33.73 percent from N53.18 billion (about $137.37million) to N35.24 billion (about $90.89million) between April and May 2020.
Nigerian stocks are down about 9.5 percent in 2020.

Nigerian stocks are down about 9.5 percent in 2020.

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