Nov. 25 (Bloomberg) -- Nigerian bank stocks, currently trading below their book value, may lead a rebound in the country’s stock market in 2012, Renaissance Capital said.
Lenders which make up the Bloomberg Banking Index are currently trading at 0.7 of their book value, making them likely targets of “renewed interest in the market, driven by cheap valuations of stocks and a return of the locals,” Akinbamidele Akintola, a research analyst with Lagos-based Renaissance Capital, said in an interview on Nov. 23. “So far market sentiment has remained muted to some of the attractive valuations we see in this sector.”
Nigeria’s benchmark equity index climbed for eight straight years, gaining 75 percent through 2007 before plunging amid a debt crisis triggered largely by loans to equity speculators. The All-Share Index fell 46 percent in 2008 and 34 percent in 2009. Though it gained 19 percent in 2010, the gauge is down 20 percent this year. Many local investors have avoided the share market and foreign investors currently account for 80 percent of daily trade.
The Bloomberg Banking Index, which tracks the performance of the top 10 banks, has fallen 31.4 percent this year, and Akintola sees little confidence to “drive the market in the short term.”
The outlook is better on a longer view, and from banks to oil and consumer stocks “there are plenty of attractive, good quality names, and now is the best time to enter the equities market,” Akintola said.
Consumer goods manufacturers will remain attractive with the recent decline in commodity prices likely to help offset currency devaluation and the cost of imported raw materials such as wheat and sugar.
Nigeria’s central bank on Nov. 21 lowered the midpoint of its exchange rate band to 155 naira per dollar from 150 naira, amid pressure from rising imports and concerns about weakening oil prices. Crude oil is the source of more than 95 percent of Nigeria’s foreign-exchange income.
“As long as we have only a creeping devaluation of the naira, it’s still good for the companies,” Akintola said.
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