The Nigerian stock market had a year to forget in 2019 as listed stocks turned in a loss of 17 percent on average.
This follows from the 17.8 percent decline recorded in 2018 and implies that the All Share Index, which tracks movement in listed stocks, has lost 35 percent in just two years.
The decline in 2019 makes Nigerian stocks the worst performers among African and frontier market peers surveyed by BusinessDay.
Despite South Africa’s many economic troubles, the Johannesburg Stock Exchange posted a 2.9 percent increase in 2019.
Kenyan stocks returned 17 percent in a late rally driven by investors who cheered Nairobi’s move to dump a controversial interest rate cap on bank lending in November.
Egyptian stocks returned 6.6 percent as a raft of market reforms that started in 2016 continues to come good for Cairo.
The only other African country surveyed by BusinessDay that posted a negative return in 2019 was Ghana following an 8.4 percent slide.
Frontier stock markets returned 9 percent, emerging markets did 14 percent and developed markets posted a 17.9 percent growth.
It’s particularly worrisome that developed markets recorded 34 times the return of the Nigerian stock market despite offering less risk.
That could lead to heightened investor apathy towards Nigerian stocks which have fallen out of favour since that 42 percent rally in 2017 that saw them rank one of the best performers.
This is because it makes little business sense to invest in a risk- laden market only to earn far less than you would have if you invested in a developed market where your investment is much safer.
The reason why foreign investors venture into risky frontier markets is due to the promise of superior returns. If they can’t get superior returns from a risky market, they might as well look elsewhere.
The abysmal performance of Nigerian stocks, however, could attract bargain hunters.
Bargain hunters are investors who acquire assets when they are trading at depressed prices that are well below their intrinsic value.
Not only are Nigerian stocks the worst performers among peers they are also the cheapest, with investors pricing them at six times of each naira earned.
That compares to a valuation of 15.7 times of earnings for South African stocks, 15.4 times in Ghana, 12 times in Kenya and 11.9 times in Egypt.
Nigeria has itself to blame for the low valuation placed on some of the biggest and most profitable companies in Africa. The government failed to implement key reforms in the foreign exchange and electricity markets, the lack of which investment bankers say deters investment.
Both Kenya and Egypt are proof that investors will react to the right economic policies.
Nigerian stocks are worst performers among peers Source: Bloomberg, Meristem Securities.
Sectoral Performance
Every sector in Nigeria closed lower compared to the start of the year. The NSE 30, which tracks price movements in the share price of the 30 largest listed companies, fell 20 percent, even worse than the 18 percent decline in 2018.
Every sector from banking, oil and gas, industrials to consumer goods index saw double digit declines.
One of the biggest losing class of investors from the stock market’s fumbling in the last two years are the pension funds, who hold the country’s largest pool of domestic capital. Although they are mostly exposed to federal government bonds they have a 5 percent exposure to stocks.
Retail and institutional investors also counted looses running into billions of naira judging by the decline in market capitalization during the year.
There were however some winners in the market.
At least ten stocks outperformed the market and returned over 30 percent to investors. Leading that list of outliers is AG Leventis which returned 103 percent.
Making up the list of the top five biggest gainers are Cornerstone Insurance (90 percent), Chams Plc (70 percent), Thomas Wyatt (65 percent) and ABC Transport (55 percent).
  1. Others include Transcorp (52 percent), Access Bank (42 percent), Jaiz Bank (40 percent), Caverton (33.3 percent) and Boc Gases (30.6 percent)