Plot a chart of Oil prices against the Nigerian Stocks over the past month and they are almost perfectly correlated.
Nigeria’s benchmark index the (NSE) all share index has gained 10 percent in the past month as Brent prices rose some 40 percent. (See chart).
Over a six-month period however, both are down sharply.
Improvements on both the demand and supply side of the oil equation have helped to push prices higher.
Data shows that all over the globe, especially in the 2 largest economies, U.S. and China, people are starting to hit the road again, while oil producers have cut output at record rates in an effort to prop up prices.
That is positive for oil prices to continue to edge higher, which helps to explain why sentiment is shifting towards Nigerian equities.
Higher oil prices mean more dollar inflows which eases pressure on the country’s current account as well as makes it more likely to attract financial flows from foreign investors who had been hesitant to put money to work in the country due to fears about getting their funds out.
Domestic investors led equity market trading in April with total value traded equivalent to N75.4 billion, compared to N53.18 billion for Foreign investors, according to data from the NSE.
Between January and April, domestic Investors (comprising Institutional and Retail), had N450 billion worth of trades compared to N305 billion for foreign investors.
Investors are snapping up Blue chip names which had been beaten down in the past 2 months.
GTB was trading up 3 percent to N25.30 per share as at 2.15 p.m. Nigerian time, while MTN Nigeria was up 1.72 percent to N118 per share.
Stocks may be due for a correction soon however, according to MoneyCentral chart watch as they near extreme overbought conditions.