The star manager and emerging markets specialist tells FE Trustnet that the Nigerian economy is the standout name in developed, emerging and frontier markets to make a long-term play on an index. “Over a thirty year period or more I would say Nigeria would outperform every other market, including developed markets, in terms of total return,” he said.
Nigeria recently overtook South Africa as the continent’s largest economy. It is also the largest oil producer and has the largest population in Africa, with an estimated 174m as of July 2013.
The country has been an economic success story in recent years, boosted by its oil production and growing middle class.
However, it is currently experiencing a major surge in terrorism, particularly in the north of the country, weakening the region’s economy and potentially providing an obstacle to the country’s tourist industry.
Mobius pointed to the country’s young demographics and expanding consumer economy as key drivers of its markets’ potential to grow.
One of the few exchange traded funds available for the Nigeria is the Global X Nigeria index which tracks larger companies in the country.
It currently has 29 holdings, which it says are the largest and most liquid in the Nigerian economy as well as being mostly domestically focused.
It has made a loss since it was launched in April 2013 of 6.35 per cent, 5 percentage points worse than the loss of the MSCI Nigeria index.
Performance of fund and index since Apr 2013
Source: FE Analytics
ETF Securities Frank Spiteri recently tipped Nigeria as an area that a normal fund may struggle to access.
He says Africa is a high growth area but that is particularly costly and difficult to access, with the Nigerian economy is particularly of note.
Mobius implemented his long-term expectations for the Nigerian markets into two of his funds: the $2.2bn Templeton Frontier markets and the $110m Templeton Africa fund.
In the Templeton Africa fund four of the top ten holdings are Nigerian companies making up approximately 20 per cent of the fund.
Holdings include Nigerian Breweries, Access Bank Nigeria and Guaranty Trust bank.
In the five crown-rated Templeton Frontier markets Mobius has one Nigerian bank – Zenith – as the fund’s fifth largest holding as well as holding two other Nigerian banks as the 11th and 13th largest holdings, making up approximately 10 per cent of the fund.
The fund has made returns almost 4.5 times greater than the gains of the MSCI Frontier Markets index since its launch in November 2008.
Performance of fund, sector and benchmark since Nov 2008
Source: FE Analytics
Frontier markets had a fantastic year in 2013 in contrast with the mainstream emerging markets. Data from FE Analytics shows the MSCI Frontier Markets index grew by 23.6 per cent as the equivalent emerging markets index fell 4.46 per cent
Performance of indices over 2yrs
Source: FE Analytics
BlackRock’s Sam Vecht and Ashmore’s Jan Dehn both tipped frontier markets at the beginning of 2014 to have another excellent year, helped by its insulation from the rest of the world.
Since the start of the year the MSCI Frontier Markets index has continued to fare better than the MSCI Emerging Markets, rising 19.51 per cent compared to 4.15 per cent.
Performance of indices in 2014
Source: FE Analytics
Vecht believes that the rising valuations have been solely driven by earnings growth that wasn’t reflected in their prices.
Mobius says he is more bullish on frontier markets than emerging markets and expects their outperformance to continue over the next longer term.
According to the ratings agency Fitch’s Peter Fitzpatrick, external pressure on the Nigerian currency – the Naira – is diminishing with a strong outlook for economic growth.
However, he says the news remains mixed, with robust growth and falling inflation, supported by strong fiscal and monetary policies but overshadowed by pre-election political wrangling and the growing prominence of Boko Haram, the terrorist group responsible for the country’s recent turmoil.
“Nigeria’s GDP has grown by an average 7 per cent year-on-year over the past five years, led by 7.8 per cent growth in non-oil GDP,” he said.
“Hydrocarbon growth has averaged 2.4 per cent over the same period, held back by oil production challenges and a lack of investment.”
“Overall growth has been robust despite a number of domestic and external shocks, and quickened to an estimated 7.4 per cent in 2013, boosted by increased gas production. Reforms to the electricity and agriculture sectors should eventually raise potential growth.”
