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Mobius Says Nigeria Strike May Cause Substantial Corrections

Protesters march in the streets of Port Harcourt, the commercial hub of Niger Delta Rivers State in Nigeria. Photographer: STR/AFP/Getty Images
Protesters march in the streets of Port Harcourt, the commercial hub of Niger Delta Rivers State in Nigeria. Photographer: STR/AFP/Getty Images

Nigeria’s benchmark stock index may extend its 23 percent drop over the past 12 months as national strikes disrupt oil exports from Africa’s largest producer, investor Mark Mobius said.

President Goodluck Jonathan’s abolition of a fuel subsidy on Jan. 1 more than doubled gasoline prices and triggered a national strike, now in its fifth day. Labor unions have threatened to shut down production in Africa’s biggest oil industry. The strike has limited trade in stocks and the naira, closed ports and banks and sparked street protests.

“We could have some very substantial corrections as a result of these moves, particularly if the unions succeed in cutting off the exports of petroleum,” Mobius, who helps oversee about $40 billion as executive chairman of Franklin Templeton Investment’s Emerging Markets Group, said yesterday in a phone interview from Cancun, Mexico.

The value of trading today on the Nigerian Stock Exchange was 388 million naira ($2.4 million), according to figures on the bourse’s website. Normal trading is 2 billion naira a day, Samuel Onukwue, managing director of Mega Equities Ltd., a Lagos-based brokerage, said by phone yesterday.

The benchmark All-Share Index declined 0.2 percent to 20,840.97, according to a statement from the exchange. The MSCI Emerging Markets Index fell 18 percent during the past 12 months, while the MSCI World Index of developed-country shares fell 6.9 percent in the same period. The Nigerian benchmark lost 16 percent in 2011.

Food Producers

“We recommend greater exposure to staple food producers as we expect their operations to pick up quickly once the strike is over,” Stanbic IBTC Bank Plc analysts led by Lagos-based Adenrele Adesina wrote in a report today. “We believe limited exposure to producers of discretionary products” and “in this context, we are underweight Nigerian Breweries Plc, Guinness Nigeria Plc and PZ Cussons Nigeria Plc.”

Nigeria’s biggest labor federations will halt street protests this weekend while maintaining their nationwide strike to give negotiators time to end a dispute over fuel subsidies, the Nigeria Labour Congress said. The main oil workers’ union will meet tomorrow to decide whether to proceed with plans scheduled to start on Jan. 15 to try to shut down fields, Babatunde Oke, the Pengassan union’s spokesman, said.

Nigeria can’t continue with subsidies “otherwise the country is not going to progress,” said Mobius. “The problem that Nigeria has is that is they’re in a crazy situation where they are exporting oil and importing diesel.”

Investment Plans

Jonathan plans to use 1.2 trillion naira in savings from the subsidy to invest in power plants, roads and other infrastructure projects. The west African nation imports about 70 percent of its fuel because of a lack of refining capacity.

Nigeria needs investment in refineries and power plants to expand its economy, Mobius said. “A few months ago I was in Lagos and I got stuck in an elevator in a hotel a few times; that’s because they’re running on diesel generators,” he said. “If you’re having a problem in a hotel in Lagos can you imagine the problems they’re having in other parts of the country with the shortage of electricity.”

Franklin Templeton has holdings in Nigerian banks, breweries and cement producers, including Dangote Cement Plc, the nation’s largest company by market value, Guinness Nigeria and Zenith Bank Plc.

“We’re not too worried because we’re longer term in our views and approach to the market,” said Mobius. “If the government is able to stick to its guns it’ll be a positive.”

Standard & Poor’s raised its outlook on Nigeria’s credit rating to positive from stable on Dec. 29, indicating it may upgrade the nation’s B+ rating, if the government follows through with reforms to boost the economy and savings. Nigeria’s current rating is four steps below investment grade, the same rank as Egypt and Uganda.

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