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Wednesday, September 27, 2023

Nigerian Stocks Pare Pandemic Losses on Reforms, Recovery Hopes

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Nigerian stocks have rallied from lows hit at the height of the coronavirus pandemic amid optimism about reforms and data that suggests escape from the worst case economic scenario.

Stocks measured by the NSE all share index have returned -4.8 percent year to date, outperforming the MSCI Frontier Markets (FM) index which has lost -12.1 percent this year.

The Lagos bourse has now clawed back gains to become the fourth best performing stock market on the African continent so far this year, besting the likes of Egypt (-20.6%), Ghana (-19 %), Kenya (-15.5%) and Mauritius (-29.1%).

From 20,669 points hit on the NSE index in early April, stocks have rallied some 23 percent to close at 25,558 points yesterday (See Chart below).

Stocks have been rallying as economic numbers out of Africa’s largest economy come in better than expected and a rash of announced reforms excite investors.

Nigeria’s second quarter (Q2) 2020 Real GDP contracted by -6.10 percent compared to 1.87 percent in Q1 2020, and 2.12 percent in Q2 2019, the National Bureau of Statistics (NBS) said last month.

South Africa’s gross domestic product (GDP) by comparison shrank an annualized 51 percent in the period through June from the previous quarter, compared with a revised 1.8 percent contraction in the first three months.

The Nigerian Government has also announced an increase in electricity tariffs and removal of subsidies on petrol that should bring back liquidity and investments into both sectors.

Financials like Guaranty Trust Bank (the largest Nigerian lender by market capitalization), which is up +25% since mid-April have led the rebound from the pandemic induced March lows.

Nigerian equities also sport juicy dividend yields some in the double digits.

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