Nigeria equities to rally further as yields remain low – Razia Khan

The equities market of Africa’s largest economy will rally further as yields in the fixed income (FI) market remain low, says Razia Khan, Managing Director, Chief Economist, Africa and Middle East, Global Research, Standard Chartered Bank.

Razia noted this on Tuesday January 19 in her special presentation at the NSE’s 2020 Market Recap and 2021 Outlook where she gave prognosis for 2021 – local and international market postulations, capital market projections, and more.

The NSE’s 2020 Market Recap and 2021 Outlook provides insights on the NSE’s performance in the just concluded year (2020) and expert predictions for the Nigerian capital market in the year to come (2021). The audience includes senior market practitioners, investors, analysts, media, government officials and other key stakeholders. Nigeria’s stock market closed year 2020 with impressive 50percent return.

Despite that unattractive yields in to fixed income space will continue to push investors to equities, Razia believes that Nigeria stands to “miss out” on substantive portfolio flows due to the nation’s FX (and rate) policy choices as well as rising inflation rate.

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The National Bureau of Statistics (NBS) recently released the inflation report for December 2020 with inflation surging to 15.8percent from 14.8percent in November 2020.

Beyond the milder liquidity impact, analysts expect rising inflation, widening current account and budget deficits, and currency weaknesses to drive the upward re-pricing yields in 2021, though the NSE CEO said he doesn’t expect this coming soon.

Despite oil reaching new high, Nigeria’s foreign exchange (FX) conditions are likely to remain tight in 2021 as the nation falls short of providing the adequate liquidity needed to ease dollar shortages.

According to Razia Khan, “Nigeria ‘old allocation’ model economy is no longer sufficient due to softer oil prices and weaker FAAC allocations”.

She noted that Nigeria’s effort in saving excess windfall from oil increasingly became difficult for Nigeria to do, adding that there is a need for long term development policies and growing revenue base (tax base entirely).

Investors are beginning to flock back into oil for reflation trade and hedging. Brent oil rose past $55 a barrel on Monday with some assistance from a weaker dollar even as the International Energy Agency (IAE) cuts its demand outlook for the rest of the year.

She noted that more liquid Sub-Saharan African (SSA) markets will benefit from dollar weakness, adding that the SSA easing cycle has largely ended.

“We expect an average oil price of $51 in 2021. Debt carrying capacity remains a key theme in SSA. New common framework on external debt aims to restore debt sustainability sooner. Spread on SSA Eurobonds have mostly tightened –it’s possible for Nigeria to borrow from international market to finance developmental projects”, she said.

At the event, the Chief Executive Officer, NSE, Oscar N. Onyema supported by members of the Executive Committee made a presentation covering: Global capital market review, particularly the impact of the COVID-19 pandemic; a review of the performance of The Exchange.

Onyema’s presentations also covered product performance (equities, fixed income and Exchange Traded Products); the NSE’s strategic performance across business development (listings, index launch, strategic projects etc.); market initiatives (business partnerships, innovation, advocacy and more); and Corporate Citizenship development (ESG related efforts).

He noted that the listing by introduction of the demutualized Exchange will make the shares available to the investing public, adding that the next opportunity will be through IPO when the shares will be made available to the enlarge investing public. In listing by introduction, the company’s shares are listed without a prior IPO.