Investors are turning to bargains in emerging and frontier markets, with Nigerian stocks and related exchange traded fund bouncing back from their worst sell-off in over two years.
The Global X Nigeria Index ETF (NYSEArca: NGE) has surged 10.0% since its March 19 low. Nevertheless, the ETF is still down 7.4% year-to-date after a steep sell-off in the broader emerging markets at the beginning of the year. [O’Neill Sees Opportunity in Nigeria]
Now, Nigerian stocks show some of the cheapest valuations on the African continent, with the Nigerian Stock Exchange All-Share Index trading at 11 times futures earnings, Bloomberg reports.
The Nigeria ETF’s stock portfolio has a 8.66 P/E ratio, according to Morningstar data. In comparison, the S&P 500 Index has a P/E ratio of 16.6.
Investors are returning to Nigerian markets after the central bank dipped into foreign exchange reserves, the most since 2010 this year, to strengthen the naira currency, which touched a record low in late February.
“Nigeria is our top pick at present,” Sven Richter, managing director of frontier markets at Renaissance Asset Management, said in the article. “We’ve seen some price decreases together with earnings results that were positive that has reduced valuation to attractive levels.”
Exotix sees strength in financial lenders like Zenith Bank, Access Bank and United Bank of Africa due to their low valuations and growth potential. Looking at NGE’s holdings, Zenith Bank is 9.5%, First Bank of Nigeria is 5.7% and Access Bank is 3.3%. Financial services make up the largest portion of NGE’s sector allocations at 40.5% of the ETF’s portolio. [What Nigeria’s New GDP Means for ETF]
“Now is the time to have a strong bias toward Nigerian banks,” ato Mukuru, an analyst at Exotix Frontier Equities, said in the article. “Nigeria also offers something that few sub-Saharan African banking systems can hope to offer — scale.”
Joseph Rohm, a manager at Investec Asset Management, points out that the country is increasing spending on infrastructure and the government is raising pay for state workers.
“Nigeria remains one of the most attractive long-term growth stories on the continent,” Rohm said in the article.
Global X Nigeria Index ETF
For more information on Nigeria, visit our Nigeria category.
Max Chen contributed to this article.