Stalled progress in the consolidation of its banking sector has dampened prospects for Nigerian stocks, but Ghana and Zimbabwe offer solid long-term bets for investors looking elsewhere in Africa, Standard Bank strategist Matthew Pearson said on Wednesday.
Pearson, Standard Bank’s head of equity product in Africa, told the Reuters Investment Outlook Summit that the bank had cut its forecast 2011 return for Nigeria’s key NSE 30 Index to just over 25% from 40% at the start of the year.
“Nigeria has had its own banking crisis where almost 50% of local banks were put into effective liquidiation,” he said.
The flare-up of political instability across North Africa and Ivory Coast, sub-Sahara, also meant Africa has been unable to capitalise on the flood of liquidity unleashed by ultra-loose monetary policies in much of the developed world.
But consumption and infrastructure are still dominant investment themes for Nigeria and the rest of sub-Saharan Africa that would lure investors back to what are largely undervalued markets, Pearson said.
“(Nigeria) has significantly underperformed frontier market peers as well as emerging markets, but from a valuation point of view it is now very cheap,” he said, adding that Nigerian shares trade around eight times forward price-to-earnings.
Stocks that will benefit from the growth in African consumer demand and infrastructure rollout are Nigerian cement producers Dangote and Lafarge Wapco and UAC Nigeria.
Pearson said he was neutral on Kenyan stocks as he was increasingly concerned about inflationary pressures and the weakness of the Kenyan shilling. The shilling has lost nearly 8% of its value against the dollar this year.
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Pearson said he was an “ardent fan” of Zimbabwe, which despite political violence, remains infrastructurally superior to much of sub-Saharan Africa outside of South Africa.
“The managerial skill-set there is first rate . . . From an equity viewpoint, it offers great opportunity,” he said, adding that telecommunications firm Econet Wireless was a top pick.
Investors however still have to find their way to get around the lack of liquidity in these markets.
