Nigerian funds switch to stocks, hoping for rebound as foreigners exit

ABUJA (Reuters) - Nigerian funds are switching back to equities from fixed-income securities, hoping for a stock market rebound later this year after a coronavirus-induced rout in oil prices prompted foreign investors to sell-off their holdings, market players said.

The stock market, once a darling for frontier market investors, has seen foreign funds take flight as the coronavirus pandemic hit oil prices, Nigeria’s main export, weakening its currency and hammering the main equity index to an eight year low this month.

Adeniyi Falade, managing director of pension fund manager CrusaderSterling Pension, said domestic funds were betting on equities to stay ahead of rising local inflation.

“I believe the worst is over. We are positioning for a rebound which will come at some point ... before the end of the year,” he said by phone.

“This is a period to go long on equities and short on bonds, whether corporate or sovereign.”

An equity analyst, who declined to be named, said that view was shared by other local pension funds.

Over the past five years, Nigerian pension funds have cut back their holdings of local equities in favour of fixed-income instruments, blaming a lack of reforms to spur growth in Africa’s largest economy following a recession.

But excess liquidity, brought about by the issuance of high-yielding securities to attract dollars to prop up the naira, has helped to depress yields as treasury bills mature and foreign players refuse to re-invest.

Falade said 13% of his 300 billion naira ($833 million) pension fund was invested in equities, up from 10% last year. He expects to be at 15% as prices recover, a level last reached more than five years ago.

Most funds like Falade’s have increased their equity holdings, market players said, betting on the recovery of a stock market that is currently down about 16% this year.

Meanwhile, stock exchange data shows foreign investors have been net sellers of Nigerian equities this year, with the pace of outflows accelerating in February as the coronavirus pandemic rattled global markets.

Brokers say that sell off is likely to continue even after Nigeria eases a lockdown aimed at containing the virus outbreak, as foreign investors queue up for dollars to repatriate funds. Backlog dollar demand is estimated at around $1.5 billion, the equity analyst said.

Foreign investors have dumped shares across board. However, heavyweight stocks such as Dangote Cement DANGCEM.LG, Guaranty Trust Bank GUARANT.LG, Zenith Bank ZENITHB.LG, Nestle NESTLE.LG and MTN MTNN.LG have seen buying interest from locals, Falade said.

Reporting by Chijioke Ohuocha; Editing by Mark Potter