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Nigerian shares to drop Up to 44% in 2009 - Renaissance

By Bloomberg

Nigeria's benchmark stock index, the world's worst-performing equity gauge in dollar terms so far this year, is likely to end 2009 lower by 8 percent to 44 percent on the slide in oil prices, Renaissance Capital said.

“We are broadly negative about the Nigerian equity market's performance over 2009 — particularly in the first half,” London-based strategist Matthew Pearson wrote in a note dated Jan. 23. “The local issues that helped drive the market lower in 2008,” are likely “to overshadow the performance of the equity market in 2009.”

Nigeria's naira has lost more than a fifth of its value since the end of November when the government decided to allow the currency to depreciate rather than drain its foreign- exchange reserves as the price of oil, the country's main export, plummeted. The Nigeria Stock Exchange's All Share Index closed at 24,000.09 on Jan. 23, a decrease of 64 percent from its record 66,371.20 reached on March 5, 2008.

There is a 60 percent probability that the key index will close the year at 30,000, bringing its decline in 2009 to 8 percent in dollar terms, according to the note. The measure may drop to 18,000 in the six months through June, the lowest since October 2003.

Under this scenario, Renaissance, based in Moscow and with offices in the Middle East and sub-Saharan Africa as well as the former Soviet Union, expects a “solid recovery” in the second half of the year.

When adjusted for currency fluctuations against the dollar, Nigeria's All Share Index is down 29 percent so far this year, according to Bloomberg data.

'Bear Scenario'
A “bear scenario” that assumes a major global recession lasting until the end of this year may push the benchmark down to 17,500 amid lower demand for commodity prices. Renaissance sees a 30 percent chance of this scenario developing, leading to a 44 percent loss in dollars.

The brokerage assigns a 10 percent probability of the index rebounding to 37,000, for a 14 percent gain in dollar terms, if the global economy improves and commodity prices stabilize.

Renaissance, started by 48-year-old billionaire Stephen Jennings, has invested in banks and other companies in sub- Saharan Africa including Ghana's Ecobank Ghana, CAL Bank Ltd. and New World Investments Ltd., in which it purchased a 49 percent interest in May.

The benchmark stock index of the west African oil-dependent country has 213 listed equities and a market value of about 7 trillion naira (about $47 billion), according to the exchange website. In 2008, the gauge declined for the first time in nine years, tumbling 46 percent.

Source: Bloomberg