Nigeria's stock market is ripe for investment after a correction this year and could one day overtake Johannesburg as sub-Saharan Africa's biggest exchange, a leading Nigerian banker said on Friday.
Gboyega Balogun, executive director of investment banking at Nigeria's First City Monument Bank, said foreign investors were keen to buy into the $95 billion market, which has fallen around 15 percent since early March.
"I have probably close to $5 billion on the sideline - ie investors who have just launched funds overseas, Africa funds - who are saying to me when should I come to Nigeria," Balogun told Reuters in his office in Lagos. "I am very, very excited about the market now. I see a lot of opportunities, I see value out there, I see prices that justify the expected earnings," Balogun, who oversees FCMB's stockbroking and asset management business, said.
Nigeria was one of the best performing emerging markets in the world in recent years, attracting private equity and hedge fund investors from Europe, Asia and the United States. But it is still not in the same league as the Johannesburg Stock Exchange, whose market capitalisation at the end of May was around $815 billion, slightly bigger than Taiwan's and slightly smaller than Italy's.
The ready availability in Nigeria of margin credit - lending to speculators - as well as huge demand from retail investors new to the equities market fuelled a bubble over the past few years which has been steadily deflating since March. Balogun said a combination of banks recalling margin facilities from brokers, investors selling shares to buy into a slew of private placements and stock prices looking fundamentally overvalued had triggered the correction.
"You've got margin calls, you've got people taking money out, you've got prices being overvalued and to a lesser extent foreign investors pulling money out because of what's going on in other parts of the world," he said. "It was a needed thing to happen, for some rationality to come back to the market."
Sceptics say buying equities in the world's eighth biggest oil exporter is just a bet on crude prices continuing to rally and fuel economic growth in an otherwise sluggish economy. But optimists say that argument ignores potential growth in sectors such as telecoms, banking and retail, driven by an expanding middle class and a government which has pledged to encourage private sector growth.
"You're looking at the simple fact that we don't have a culture of consumer banking yet. You go out to a restaurant you're carrying cash. You go out to buy something, you use a cheque," Balogun said.
"There is no such thing as consumer lending (in Nigeria), even in terms of housing, how many people have mortgages? These are all opportunities that are eventually going to translate into profits," he said. Volatility in the market was partly due to the high number of retail investors, many of them with no previous experience of holding shares, who believed the market could only rise and were easily panicked by negative headlines, he said. "When the market is going down they'll over sell, when the market is up they'll over buy," Balogun said.
But he forecast more institutional investors would arrive as more Nigerian firms listed and stock prices began rising again. "By the time you bring in some of these companies about to do IPOs, by the time we see a return of growth, this market is going to be far, far bigger than South Africa," Balogun said.
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