Nigeria’s world beating stocks may gain even more if oil prices hold up

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The main equity index in Africa’s biggest economy has surged 12% this year in dollar terms, the most among 96 major bourses tracked by Bloomberg, pushing it to the highest level since 2008.

Dangote Cement Plc, the largest company on the exchange, has climbed to a record high. The advance will probably be sustained thanks to rising prices for oil, Nigeria’s main export, and as investors look to increase their holdings of what remain among the cheapest stocks in Africa, according to the asset management arm of South African lender FirstRand Ltd.

Nigerian stocks are leading the world so far this year and foreign investors have been crucial in driving the market higher. Even after the gains, Nigerian valuations are seen to be the least expensive among the major African equity indexes which suggests there’s further upside, according to Cape Town-based fund Allan Gray.

However there are still some warning signs. The 120-day correlation between Nigerian stocks and Brent crude is now around the highest in two years. If oil prices reverse their 45% climb since June, Nigerian assets could take a hit. That’s a major reason HSBC Holdings Plc has a negative outlook on the stocks.