Mobius Placing Biggest Wagers on Nigeria for Frontier Rally
“Nigeria is very, very important,” Mobius, 77, who oversees about $53 billion, said in an interview in Lagos, Nigeria’s commercial capital on Jan. 15, without saying whether he has added to Nigerian holdings. “You’ve got a vibrant and growing middle class, a big consumer population, a young population that will be consuming more and more.”
Africa’s largest oil producer has the highest weighting among Templeton’s frontier funds, he said. Nigeria’s economy may expand 6.7 percent this year, the World Bank said, matching 2013 and beating 2014 growth in developing markets of 5.3 percent. The population of 160 million is attracting retailers such as Cape Town-based Shoprite Holdings Ltd. (SHP), Africa’s largest grocer, and is the largest market for MTN Group Ltd. (MTN), the continent’s biggest mobile-phone company.
The Nigerian Stock Exchange All Share Index (NGSEINDX) jumped 47 percent last year, Africa’s best performer after Ghana, which soared 79 percent, according to data compiled by Bloomberg. The MSCI Emerging Markets Index slid 5 percent last year compared with a 24 percent rally in the MSCI World Index and 21 percent increase in the MSCI Frontier Markets Index. Nigeria’s main equities gauge climbed to the highest since Jan. 8, adding 0.3 percent by the close in Lagos.
As of September, Nigeria accounted for about 11 percent of the holdings of the $2.3 billion Templeton Frontier Markets Fund, which was incorporated in Luxembourg, according to data compiled by Bloomberg. The fund gained 12.8 percent over the past 12 months, beating 95 percent of its peers, while underperforming the MSCI FM Frontier Markets Index, which gained 19 percent, Bloomberg data show.
Nigeria made up 12.65 percent of the fund’s equity at the end of November, compared with a weighting of 14.79 percent in the MSCI Frontier Markets Index, while Saudi Arabia made up 12.69 percent of the Templeton portfolio, according to a fact sheet on the company’s website.
A drop in emerging-market equities last year has given stocks “breathing room,” which will allow developing nations to outperform developed markets in 2014, he said. His funds are also invested in Vietnam, United Arab Emirates, Qatar, Kazakhstan, Pakistan and Bangladesh, Mobius said.
Stocks from Middle Eastern countries have too high weightings in benchmark indexes and with investors beginning to distinguish between markets, less money may flow to these nations, he said.
“People are beginning to understand the frontier markets are much more varied, it’s not only Kuwait (SECTMIND), it’s not only Bahrain (BHSEASI),” Mobius said. “It’s many, many more countries and a country like Nigeria should really have a heavier weighting than some of these Middle Eastern countries.”
Templeton is invested in Nigerian Breweries Plc (NB), the nation’s biggest brewer, and Guinness Nigeria Plc, according to data compiled by Bloomberg. It also owns stakes in Johannesburg-based MTN, Guaranty Trust Bank Plc, Nigeria’s largest lender by market value, Zenith Bank Plc (ZENITHBA) and FBN Holdings Plc, according to data compiled by Bloomberg.
“We get into the consumer area indirectly with banks because banks are expanding their consumer business,” Mobius said. “And then we go into the beverage area, the beer companies. We’re looking at other consumer names, smaller names.”
Templeton is a long-term investor in Nigerian banks and is not reducing its holdings in lenders, he said in October 2012. Mobius didn’t immediately return an e-mailed message seeking comment on changes to his Nigerian investments.
Nigerian lenders “will do well, feeding on the oil and gas sector,” Pabina Yinkere, an equity analyst at Vetiva Capital Management Ltd. in Lagos, said by phone today, highlighting Access Bank Plc, Zenith, Guaranty, Diamond Bank Plc and FBN. “We see banks increasing their loan books by 15 to 20 percent this year.”
Nigeria’s all-share equities measure is valued at 14.6 times past earnings, compared with 12.8 times for shares in the MSCI Frontier Market index. The nation’s budget for 2014 may overestimate oil production forecasts because of increased tension in the country’s crude-producing regions in the run-up to presidential elections next year, Ravi Bhatia, a credit analyst at Standard & Poor’s in London, said Jan. 14.
The elections may result in more instability as the ruling party faces increased opposition, Mobius said. President Goodluck Jonathan’s People’s Democratic Party, which has been in power since military rule ended in 1999, may face its sternest electoral challenge yet after a series of defections to the main opposition coalition.
While Nigerian bank earnings may come under pressure, the industry will benefit from regulations introduced last year that increased capital requirements, he said. Nigerian central bank Governor Lamido Sanusi more than five years ago swooped on the West African nation’s banks, firing eight chief executives amid mismanagement and reckless lending, winning praise for rescuing the industry from near collapse.
“We’re very happy with the central bank because they’ve cracked down on any shenanigans,” Mobius said.
Sanusi, 52, is due to step down at the end of his term in June. He’s established a framework at the central bank, which “will live beyond his term,” Mobius said. “Of course the next critical question is, ‘who’s going to be next?’ I’m confident they will get someone who will be strict as he has been.”
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