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Top rated African equity team warns of Nigeria’s ‘perfect storm’

Top rated African equity team warns of Nigeria’s ‘perfect storm’

Swiss group Bellevue Asset Management has cut exposure to Nigeria in its flagship African equity funds due to a ‘perfect storm’ of potentially damaging challenges on the horizon.

The comments came in an update for the Bellevue F (Lux) BB Opportunities fund for the end of October.

In the note, the fund managers, which are comprised of Citywire AAA-rated Malek Bou Diab, Citywire AA-rated Elena Ogram and fellow manager Havard Chi gave a stark outlook for the frontier market.

Nigeria has emerged as a firm favourite among many emerging and frontier market equity specialists over the last couple of years. This is to the point of Renaissance Asset Management launching a dedicated country fund to centre solely on Nigeria.

‘We have continued to reduce our exposure to Nigeria as we believe that lower oil prices, coming elections, security issues in the North, low liquidity and poor results have the potential to create a perfect storm,’ the team said.

This has seen exposure fall from just below 17% at the start of the year to 11.9% in the latest filing. The oil question in particular was a point of concern for the Swiss-based investment team.

‘Oil exporters such as Nigeria strongly benefited from increasing export revenues and indulged into a consumption boom. This party might be coming to an abrupt end and some painful adjustments will be required. The Nigerian market fell victim to lower oil prices loosing 8.9%.’

The criticism of the Bellevue team comes eight months after fellow frontier market specialist, Matt Linsey, suggested Russia was a more attractive ‘frontier market’ play than Nigeria. Speaking in March, the Citywire AAA-rated manager said it would look less expensive than Nigeria.

Eyes on Egypt

Elsewhere in the Bellevue fund, the team opted to reduce exposure to the Egyptian real estate sector as it was deemed to have reached its peak in terms of a rebound. This is while volatility has increased in the sector, the team said.

Egypt remains the largest single country bet in the $122 million fund, representing 36% of geographic exposure. This is a reduction from the 39% position at the end of September 2014.

The Bellevue F (Lux) BB Opportunities fund returned 37.2% over the three years to the end of October 2014. This compares to a fall of 15.4% by its Citywire benchmark, the S&P Africa 40 TR, over the same period.

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