Nigeria's stock market may have slipped from being a darling of frontier investors to one of the world's worst performers but its decline should open up buying opportunities for long-term investors, analysts say.
The Nigerian all-share index has fallen more than 16 percent since the start of the year to levels not see since July 2006, extending a slide of more than 45 percent last year.
Sharp falls in the value of the naira currency, which has lost more than 20 percent of its value against the U.S. dollar since early December, makes Nigeria the world's worst performing equity market in dollar terms this year.
More than 400 billion naira ($2.7 billion) of foreign investors' money left Nigerian equities in 2008 as the global credit crisis dampened appetite for risk and falling oil prices clouded the country's economic outlook.
Brokers in the commercial capital Lagos see little immediate respite, but point out that Africa's most populous nation, with more than 140 million people, remains a huge potential market in the long term for everything from financial services to beer.
"It's a good time to enter the market for long-term investors, but if you're looking at short term gain, the market isn't really for you," said Gboyega Balogun, executive director in charge of investment banking at First City Monument Bank Plc.
Some stocks in sectors including brewing, construction, petroleum and energy have fallen below historic fair value and represent potential long-term opportunities, said Sodiq Waziri, chief research officer at brokerage LeadCapital.
"No matter the level of downturn in the economy, Nigerians will continue to patronise brewery products, while there's strong underlying capacity for growth for the local cement manufacturers," he said.
But he added a recovery in the market, the second-biggest in sub-Saharan Africa after South Africa, was unlikely this year.
Lagos-based brokerage Afrinvest said in its outlook for 2009 that large corporates, particularly in traditional sectors with limited dependence on financial market stability for revenues and profit, would be among its stock picks.
Dangote Sugar Refinery, Guinness Nigeria, Nigerian Breweries , the Nigeria Bottling Company and Lafarge Cement were among its favoured names.
The country's banking sector was the main driver behind the stock market's stellar performance in 2007, when it was among the best-performing frontier markets in the world.
But concern over their exposure to the falling capital markets meant only those banks with the best disclosure levels would benefit from a flight to transparency, Afrinvest said, citing Guaranty Trust Bank as one example.
