Yields Rush to Rescue of One of World’s Worst Stock Markets

(Bloomberg) -- Nigerian stocks may be among this year’s worst performers, but that’s at least boosting the appeal of their yields.

The benchmark index in Africa’s biggest oil producer has fallen 14% this year, making it the fourth-worst among 94 major bourses tracked by Bloomberg. The slump underscores foreign investors’ frustration over a lack of policy progress since President Muhammadu Buhari won re-election in February.

Despite the gloomy picture, a global abundance of negative-yielding debt and the generous payouts on offer from Nigerian stocks could revive the Lagos market’s allure for those seeking returns, according to investors including Tundra Fonder AB.

“As long-term investors, this is a great opportunity to create alpha further down the road and get very attractive dividends in the meantime,” said Mathias Althoff, a money manager in Stockholm at Tundra Fonder, which has about $50 million of African assets, $20 million of which is allocated to Nigeria.

With a 9% cash payout projected in the next 12 months, Nigeria promises more than three times the returns of the MSCI All Country World Equity Index, data compiled by Bloomberg show. Members of the Nigerian Stock Exchange index trade at just five times estimated earnings, making equities in the oil-rich nation among the cheapest globally of those with generous yields.

Stocks in Africa’s most-populous country are also looking more enticing than their frontier peers, with estimated yields for members of the MSCI Frontier Markets Index at less than 6%.

“Even if earnings do not grow, the fact that prices are very low will mean that you will have higher yields compared to other markets,” Jerry Nnebue, analyst at Cardinalstone Partners, said by phone from Lagos. The dividend estimates may prompt a recovery in share prices as investors turn to the cheapest markets for gains, he said.

The Nigerian benchmark index fell 0.2% in Lagos Tuesday.

While doubts over the Nigerian government’s ability to spur faster economic growth may deter traders from buying the country’s stocks, there are some shares that look attractive even with the murky near-term outlook, said Althoff. These include leading lenders such as Guaranty Trust Bank Plc and Zenith Bank Plc.

“With the two top tier-one banks Guaranty Trust and Zenith yielding 11% and 17% respectively, it makes sense to buy them regardless of the lack of a short-term trigger,” Althoff said.

--With assistance from Ksenia Galouchko.

To contact the reporter on this story: Tope Alake in Lagos at talake@bloomberg.net

To contact the editors responsible for this story: Anthony Osae-Brown at aosaebrown2@bloomberg.net, ;Blaise Robinson at brobinson58@bloomberg.net, John Viljoen, Jon Menon

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