Rout isn’t over for Nigeria assets as dollar woes deter cash

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 this year, losing 41 percent in dollar terms.

The following charts show the rout probably isn’t over.

Currency Valuation

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 432, another sign investors see more weakening to come.

Corporate Profits

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 price-to-earnings ratio based on estimates for the next 12 months for members of the Nigerian Stock Exchange All Share Index was 8.1 as of Wednesday, below even that of Zimbabwe’s main gauge.

Index Weighting

With Nigeria’s weighting in 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.