Nigerian stocks rose 7.75 percent in May, helping to erase year-to-date losses for the All Share Index (ASI), as the rebalancing in the MSCI index attracted funds to the bourse.
The MSCI, whose indices are followed by billions of US dollars from institutional investors, has increased the weighting of Nigeria’s equity market on its popular MSCI Frontier markets to about 19 percent, up from 12 percent previously.
The increase is helping to channel about $200 million in fresh foreign flows on top of further domestic flows, driving the NSE-ASI to a four month high.
“Positive sentiment following the inclusion of ETI and Forte Oil (FO) in the MSCI Frontier Market Index, stable monetary environment, mixed corporate earnings, impressive dividends and yields were key drivers of equities in May, amid heightened security concerns,” said Elixir Capital analyst, Abiodun Keripe, in a June 3 note.
On sector basis, the oil and gas, banking, and the consumer goods sectors were instrumental to the gains recorded in May.
The oil and gas sector advanced 21.6 percent (lifted by gains in Forte Oil plc [NSE Ticker: FO]), banking 13.1 percent and the consumer goods sector 8.2 percent.
The industrial and the insurance sectors gained 4.8 percent and 3.8 percent, respectively.
The annual re-balancing of the index – triggered after the United Arab Emirates and Qatar were upgraded from “frontier” to “emerging market” status – has sharply increased trading volumes in Lagos, with shares worth more than $70 million changing hands on the exchange last Friday.
Following the re-weighting, Nigeria is the second largest constituent in the MSCI frontier index after Kuwait. The index is tracked by $6 billion in institutional money.
“The Nigerian basket of equities, despite seeing a modest climb in valuation as price-to-earnings (P/E) ratio, has risen to 13.436x (May 30) from 12.451x (April 30), still appears relatively cheap and attractive compared to peers within the SSA basket priced at 25.09x P/E,” said Keripe.