Nigerian stocks will rise a total of 50 percent in 2010, boosted by a government company that will buy bad debt from the nation’s banks and by an increase in state spending following budget approval, Renaissance Capital said.
The Nigerian Stock Exchange All Share index has surged 27 percent this year, outperforming a 9.5 percent gain in the Morgan Stanley Frontier Markets index over the same period. The All Share gauge slumped 34 percent in 2009, the world’s second-worst performer in 2009 after Ghana’s benchmark index.
Nigerian Breweries Plc, the country’s biggest company by market value, has rallied 32 percent and is the biggest contributor to the index’s gains, followed by Zenith Bank Plc with a 42 percent advance. The Nigerian market is sub-Saharan Africa’s largest after South Africa.
The lower house of parliament approved the creation of a state-run asset management company last month to take toxic debt off lenders’ balance sheets and allowing them to begin full operations once more, Akintola Akinbamidele, a Lagos-based analyst at Renaissance Capital, said by phone on April 30. The bill still awaits passage in the Senate, he said.
Acting President Goodluck Jonathan last week signed a 4.6 trillion-naira ($30.6 billion) budget that marks a 50 percent increase from original spending plans as the government steps up investment in infrastructure.
The asset management company “will be the stimulus for the banks,” Akinbamidele said. With the budget signed, “spending in the economy should increase and non-financial companies will do equally as well.”
Nigeria’s banks, which make up at least 40 percent of the West African exchange’s value, reduced lending operations as bad debts spiked to as much as $10 billion, Eurasia Group, a New York-based research company, said last year. The central bank set aside 620 billion naira ($4.1 billion) to bail out 10 of the country’s lenders, and fired the chief executive officers of eight.
Banks have resumed lending and the asset management company’s support will provide a stimulus to them, Akinbamidele said. “We should see a pick-up across the board.”
Reforms introduced by the Central Bank of Nigeria, including plans to set up the asset management company and requirements that banks make full provisions for bad debts, have boosted the market.
‘Not as Bullish’
Meristem Securities Ltd., the second-biggest brokerage in Africa’s most populous country based on the value of transactions on the Nigerian Stock Exchange, may review its forecast for a 20 percent rally in 2010, “most likely upwards,” Abiola Razaq, a Lagos-based analyst with Meristem, said by phone today.
Bonds yields are low and as “investors reallocate their assets from the fixed-income market, stocks will be on the upward move,” he said.
The yield on Nigeria’s three-month Treasury bills is 1.1 percent, the lowest since at least February 2006, according to data compiled by Credit Suisse Emerging Markets.
Bank deposit rates “are about 6 to 7 percent per annum, depending on the bank and amount involved,” Razaq said. “This is too low compared to possible returns in the equities market. Some stocks return as much as 25 percent in a week.”