Outrage over the executions of social activists in Nigeria has cast a pall over that market, just months after the Nigerian government lifted restrictions against foreign investment in Nigeria's stock market.
Hangings effectively put the market on the unsuitable list. Many emerging markets investors cited political risks that appear too severe to warrant investment in that country's $1.86 billion market.
"Nigeria has massive political risk," summed up Jose Fiuza, portfolio manager with Montgomery Asset Management in San Francisco. "I wouldn't invest in that place at all, given the current circumstances."
"For institutional investors there is no reason to go to Nigeria. It's way too early in the spectrum, and it could be years before (that market) is attractive," said Robert Scharar, president of financial advisor FCA Corp., Houston. FCA's African Advisory Services division provides advice on business and financial matters in Africa.
While Mr. Scharar sees southern Africa as attractive for investment, "it will be a long time before there is meaningful change in Nigeria's government and a turn toward a more civilized society."
Earlier this month, the ruthlessness of Nigeria's military government was underscored by the hangings of nine Ogoni human rights/environmental activists. On shaky evidence, the nine were convicted of last year's murders of four pro-government Ogoni chiefs.
The hangings ignited an international storm of protest that included suspension of Nigeria from the British Commonwealth as well as other tightened sanctions against the country.
In addition, South Africa's President Nelson Mandela has called for a regional summit of leaders of the Southern African Development Community to discuss measures against Nigeria's leaders and has asked Royal Dutch-Shell Group to reconsider its participation in a planned liquefied natural gas plant in Nigeria.
Furor has been so intense some money managers asked not to be quoted for this story. Their explanation: any association with Nigeria, even the possibility that they would consider investing there, would appear unseemly and could anger clients. For example, one London money manager who asked not to be identified said several clients had called asking him to steer clear of Nigeria's market.
The latest political upheavals aren't the only problems for Nigeria.
According to the Bank Credit Analyst in Montreal, Nigeria has a 60% inflation rate and very low foreign currency reserves. Although the economy is seen as potentially attractive for its oil and its population of roughly 100 million, its military rule (the man elected president in 1993 is still in jail), rampant crime and alleged widespread corruption are among the sobering realities that deter portfolio investors.
Technically, the market itself became accessible to foreigners after the government repealed two key prohibitions in January. The signing of two decrees in July officially opened the stock market; and in August, the government published the decrees.
But even before the market's opening to foreigners, stock prices had been run up. Local investors had bought shares in anticipation of foreign interest.
In local currency terms, the stock market jumped 183.8% for the first 10 months of this year - making it the best performer of the 27 markets tracked by the International Finance Corp., Washington.
But in U.S. dollar terms, the market fell 28% during that period, according to the IFC, because a deregulation of the foreign exchange market early this year allowed the currency to float to a significantly lower level. (However, if the market exchange rate had been used throughout the year, the Nigerian stock market would have climbed more than 100% in U.S. dollar terms.)
The stock market's jump, along with a host of other problems - including lack of adequate custody arrangements in Nigeria, low trading volume and commissions that tally about 5% of a trade - have deterred John Niepold, manager of the approximately $60 million Africa Emerging Markets Fund of Emerging Markets Investors Corp., Arlington, Va.
Steering clear of Nigeria for now, Mr. Niepold prefers the markets of Zimbabwe, Mauritius and, selectively, that of the Ivory Coast.
John Legat, manager in London of the newly launched G.T. Africa Fund, also isn't investing in Nigeria. As he sees it, "the government has taken no serious measures to deregulate the (centrally controlled) economy."
And, he expects Nigeria "will not get international capital until it reforms the economy."
Although Nigeria's stock market was little affected by the furor over the executions, the price of Nigeria's Brady bond (par maturing in 2020) fell a maximum of about three points following the executions.
Given the political news, Salomon Brothers Inc., New York, has lowered its estimate of creditworthiness Nigeria's Brady bond to "negative" from its previous "mildly negative" rating, said bond portfolio analyst Eugene Beidl.
However, the price continues to be rated as "fair" value, since the yield spread widened as the bond's price declined.
A Salomon report said: "Although we maintain our opinion that the government will continue to service Brady debt instruments and promissory notes given the small percentage of the country's debt service that these instruments represent, the government is becoming increasingly isolated, and the prospects for near-term official debt relief or an International Monetary Fund agreement are remote."
Omontunde Mahoney, manager of the $5 million Nigeria Emerging Market Fund of International Asset Transactions L.P. in New York, believes the markets in Nigeria are attractive.
"The fundamentals in Nigeria are actually quite strong," he said. "What a lot of investors have not zeroed in on is that Nigeria is in the midst of early stages of an orthodox economic reform program: aggressive fiscal reduction; a significant reduction in tariff rates, which should foster increased competitiveness among local producers; rationalization of the oversupplied banking sector; and the deregulation of the foreign exchange market.
"The interesting thing is that few people are aware of these changes ...and the government has chosen not to draw attention to them."
Mr. Mahoney's manages a Cayman Island-listed balanced stock and bond fund for non-U.S. investors that now has 30% of its portfolio invested in Nigerian equities. The fund made no changes in its holdings in the aftermath of the executions; in fact, the fund had been prepared to buy bonds if the market had weakened significantly.
Moreover, Mr. Mahoney believes foreign investment interest in Nigeria is growing. As evidence, he cited at least one large U.S. money management firm, which he wouldn't name, that "remains very interested in deepening its involvement in Nigeria" to include equity investing.