Azàland

Nigerian equities are beating all peers in the Europe, Middle East and Africa region in 2024 as pension funds and institutional investors pile into stocks on expectations of record profits from lenders booking revaluation gains on their foreign-exchange positions.

The 151-member NGX All-Share Index is up 11% this year in local currency, trailing only Argentina globally. The NGX has advanced almost 60% in the past year. That compares with a less than 2% advance for the MSCI Emerging Markets EMEA Index over the same period.

Banking stocks have driven gains, with the banking index up 16% this year and nearly 140% over the past 12 months. The holding company that owns Access Bank PLC is up 21% so far in 2024, while Zenith Bank PLC is up 12% and Guaranty Trust Holding Co. is up 14%. The banking index trades at a price-to-estimated earnings ratio of 2.24 times.

Dividend Order

Significant profits from the devaluation in the naira are making banks in Africa’s most populous country attractive for investors, said Ayodele Salami, chief investment officer for UK-based Emerging Markets Investment Management Ltd.

“Although the CBN has instructed the banks not to use these gains to pay dividends, it is likely that some of these gains will eventually be passed to shareholders, maybe via bonus issues,” Salami said, using the initial for the central bank.

Zenith, Nigeria’s biggest lender, booked 355.6 billion naira ($372 million) of foreign-exchange gains, more than doubling profits in the nine months to September. UBA Plc similarly raised profits by more than 300% to a record 502 billion nairas in the same period.

Negative Yields

Negative real yields on the nation’s fixed-income securities have also made equities relatively more attractive in the country. The Central Bank of Nigeria sold one-year treasury bills this week at a yield of 8.4%, which is less than a third of the inflation rate of 28.2% in November, an 18-year high.

Local institutional investors including pension funds are increasing investments in equities to boost income since they offer positive returns relative to inflation, Usoro Essien, head of research at RMB Nigeria Stockbrokers, said by phone.

“A dearth of alternative investment options and asset classes” is shifting interest to equities, Essien said. “PFAs appear to have started taking longer-term views on equity investment so I don’t expect a severe price correction.”

Nigerian lenders are due to release 2023 financial reports and dividend plans from next month.