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Dollar crunch turns Nigerian banks into Africa’s cheapest stocks

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Nigerian banks are some of the cheapest stocks in Africa, more evidence of how a shortage of dollars in the continent’s largest economy is discouraging foreign investors.

Four of the five African stocks with the lowest price-earnings ratios among companies valued at $500 million or more are Nigerian lenders, data compiled by Bloomberg show: United Bank for Africa Plc, Access Bank Plc, FBN Holdings Plc and Zenith Bank Plc. Johannesburg-traded steelmaker ArcelorMittal South Africa completes the quintet.

Investors have been able to beat returns from the Lagos stock market by buying higher-yielding debt sold by the government to fund its widening budget deficit. But it’s the Central Bank of Nigeria’s curbs on the repatriation of dollars that’s the biggest bugbear for foreigners and the key reason for depressed valuations, said Usoro Essien, an analyst at Rand Merchant Bank.

“The foreign exchange illiquidity has frustrated a lot of foreign investors, so the apathy is not just on banks but on the market in general,” Essien said by phone.

The West African nation’s stock market had a good 2020, climbing 50% as local pension funds barred by the state from trading in its most lucrative short-term debt poured money into equities. That liquidity has since largely dried up and the 151-member benchmark index is down 2.3% this year, with an index of the country’s largest banks sliding 3.7% as of Monday’s close.

Domestic investors may be drawn back to the lowly valued stock market if fixed-income yields prove unattractive, but that’s unlikely to be enough of an incentive for non-residents, Essien said. “For the foreign investor, what matters most is the ability to exit at will.”

© 2021 Bloomberg


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