Nigerian markets can’t catch a break.
The nation’s economy is set to contract in 2016 for the first time in more than two decades as the crash in oil prices, militants blowing up pipelines and capital controls deter foreign investment. Nigerian stocks have been the world’s worst since the beginning of 2015, losing 56 percent in dollar terms.
The following charts show the worst is yet to come.
Until investors are convinced the naira is priced fairly, they’re unlikely to re-enter Nigerian markets. The currency, which has already depreciated 37 percent to around 315 per dollar since central bank Governor Godwin Emefiele ended a peg on June 20, is still trading well below the black-market rate of 485. One-year non-deliverable forward contracts trade at 436, another sign investors see more weakening to come.
Investors are anything but optimistic about the prospects for company profits over the coming year. Even after rising for five straight days, Nigerian stocks are the cheapest in Africa. The 12-month price-to-earnings ratio for members of the Nigerian Stock Exchange All-Share Index was 8.1 as of Wednesday, below that of even Zimbabwe.
With Nigeria’s weighting in the MSCI Frontier Markets stock index down to 7.3 percent from 15.3 percent two years ago, there’s less demand for the nation’s equities from the $12 billion of funds tracking the gauge. Argentina, Pakistan, Morocco and Vietnam overtook Nigeria in the weightings, while Kenya and Oman closed the gap.