Nigerian funds switch to stocks, hoping for rebound as foreigners exit

By Chijioke Ohuocha
ABUJA, April 30 (Reuters) - Nigerian funds are switching
back to equities from fixed-income securities, hoping for a
stock market rebound later this year after a coronavirus-induced
rout in oil prices prompted foreign investors to sell-off their
holdings, market players said.
The stock market, once a darling for frontier market
investors, has seen foreign funds take flight as the coronavirus
pandemic hit oil prices, Nigeria's main export, weakening its
currency and hammering the main equity index to an eight year
low this month.
Adeniyi Falade, managing director of pension fund manager
CrusaderSterling Pension, said domestic funds were betting on
equities to stay ahead of rising local inflation.
"I believe the worst is over. We are positioning for a
rebound which will come at some point ... before the end of the
year," he said by phone.
"This is a period to go long on equities and short on bonds,
whether corporate or sovereign."
An equity analyst, who declined to be named, said that view
was shared by other local pension funds.
Over the past five years, Nigerian pension funds have cut
back their holdings of local equities in favour of fixed-income
instruments, blaming a lack of reforms to spur growth in
Africa's largest economy following a recession.
But excess liquidity, brought about by the issuance of
high-yielding securities to attract dollars to prop up the
naira, has helped to depress yields as treasury bills mature and
foreign players refuse to re-invest.
Falade said 13% of his 300 billion naira ($833 million)
pension fund was invested in equities, up from 10% last year. He
expects to be at 15% as prices recover, a level last reached
more than five years ago.
Most funds like Falade's have increased their equity
holdings, market players said, betting on the recovery of a
stock market that is currently down about 16% this year.
Meanwhile, stock exchange data shows foreign investors have
been net sellers of Nigerian equities this year, with the pace
of outflows accelerating in February as the coronavirus pandemic
rattled global markets.
Brokers say that sell off is likely to continue even after
Nigeria eases a lockdown aimed at containing the virus outbreak,
as foreign investors queue up for dollars to repatriate funds.
Backlog dollar demand is estimated at around $1.5 billion, the
equity analyst said.
Foreign investors have dumped shares across board. However,
heavyweight stocks such as Dangote Cement DANGCEM.LG , Guaranty
Trust Bank GUARANT.LG , Zenith Bank ZENITHB.LG , Nestle
NESTLE.LG and MTN MTNN.LG have seen buying interest from
locals, Falade said.
($1 = 360.00 naira)