In April I wrote about the Nigerian stock market. Since May the Nigerian market is up 30%. Over the same period, the global stock market has basically been flat (shown below).
Timing-wise this was lucky– I didn’t predict a two-week turnaround. The bounce seems to be provoked by a currency scare in May when an overnight selloff turned into an excellent buying opportunity. From a technical perspective, the Nigerian market does look overbought and may see some short-term pullback.
But the fundamental reasons underlying the position remain intact. Nigeria continues to be an attractive frontier market with strong long-term growth potential. Meanwhile, negative sentiment from investors has Nigerian stocks selling at deep discounts relative to global equity indices. This type of myopic risk aversion is an opportunity for those who have the ability to survive it.
In this case, it didn’t take long. And whatever the reason, this is an easy outcome to love. Traders may want to use this opportunity to book some profits, while long-term investors can use it to rebalance and adjust positions. See my April post for a more detailed look at Nigeria.
Victor K. Lai, CFA
This blog is for informational purposes only. Nothing on this blog represents advice of any kind. Investing is inherently risky and involves the risk of potential loss. Victor Lai is long NGE.