Performance across the African market was negative across the board, exacerbated by weakening currencies. Tunisia was the worst performing market down -14% but all eyes were on Nigeria that plunged -13%. Following a prolonged period of uncertainty, the Central Bank of Nigeria decided to adhere to the pressure that had been building from foreign investors to local businesses to float the local currency, the Naira. The policy of exchange controls and a peg against the USD had hurt economic activity tremendously over the past quarters. GDP growth had come to an absolute standstill after over a decade of 5%+ growth. In anticipation of the much awaited announcement from the CBN the market moved sharply higher throughout the quarter rallying 24% in local currency, but the 40% devaluation and Brexit vote eroded all the gains and more. In USD terms the Nigerian Stock Exchange All Share Index is trading at the lowest level seen since 2003! Down by more than 60% in less than 2 years. Despite the earnings trough, the broad market is trading at an estimated 10x earnings with a dividends yield of 5%.  We suspect that the stock rally may resume after its Brexit interruption especially if the corporate earnings continue to show support. The floating of the Naira will allow for a normally functioning business climate going forward. The economy will also be supported by long overdue investments that were halted due to the FX issue. Nigeria still faces many risks but on balance we are bullish due to the unusually attractive valuations found in the stock market. One of our underlying manager’s comments: “Our Nigerian portfolio has a trailing PE of 4.3, with a 0.3 price/book ratio and a 9.8% weighted average dividend yield. Data source: Bloomberg

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