Nigerian stocks, the world’s second-worst performers this quarter, will probably rise after February elections, even if oil prices stay low, said Mark Mobius, executive chairman at Templeton Emerging Markets Group.
“There’ll be a recovery next year, provided that the political environment gets better,” Mobius, who oversees $40 billion of investments, said by phone from Bangkok today. “The problem has been the political environment. It’s quite bad.”
Stocks in Nigeria, Africa’s largest crude producer have dropped 29 percent in dollar terms since September, the most after Argentina among 93 gauges tracked by Bloomberg. The naira has weakened 11 percent against the greenback, more than any African currency except Malawi’s kwacha.
President Goodluck Jonathan, a 56-year-old Christian southerner, is bidding for a second term in the Feb. 14 elections. The main opposition All Progressives Congress will probably choose former military ruler Muhammadu Buhari, a 71-year-old northern Muslim, to be its candidate tomorrow, Philippe de Pontet, New York-based Eurasia Group’s Africa director, said in an e-mailed note today.
Political tension has risen before the elections. Police fired tear gas at opposition lawmakers last month. The government also is struggling to contain a rebellion by Boko Haram. The militants have killed more than 13,000 people in a five-year campaign to establish a caliphate in in northeastern Nigeria, according to Jonathan.
‘Chaotic Situation’
“All this spells a chaotic situation for anybody looking from the outside,” Mobius said. “That’s why it’ll be very important for the government to take strong action and get the house in order.”
This year’s 36 percent drop in the price of oil, on which Nigeria depends for more than 90 percent of export earnings and 70 percent of government revenue, has forced policy makers to announce spending cuts and raise interest rates to a record to stem outflows from foreign investors. While a higher crude price would help, the country can cope by stemming losses from production, Mobius said.
“Nigeria, with the corruption problems, has a lot of leakage of oil money from the budget,” he said. “If they’re able to correct that, which I think they will, then even a low oil price won’t be a big problem.”
Jonathan suspended Lamido Sanusi in February after the then central bank governor alleged the state oil company had retained $20 billion due to the government. Finance Minister Ngozi Okonjo-Iweala told reporters last year that unaccounted oil receipts stood at $10.8 billion and in May said auditors PricewaterhouseCoopers LLP would take three to four months to clarify what had happened to the funds.
Bank Stocks
Templeton Frontier Markets Fund hasn’t reduced its exposure to Nigeria, Africa’s largest economy, because of the recent downturn, Mobius said. The fund has a roughly 12 percent weighting for Nigeria, the most after Saudi Arabia, which is at 15 percent.
“Anybody involved in frontier markets will want to be involved in Nigeria,” he said. “On an individual company level, things are pretty good.”
Templeton’s main holdings in Nigeria include FBN Holdings Plc., owner of First Bank, the biggest lender, and Zenith Bank Plc.
“The only place we’ve found best value is in the banking sector,” Mobius said. “The other areas in Nigeria are pretty expensive. The cement companies and consumer-product companies are pretty expensive.”
Credit: Bloomberg