|Economists and investment analysts have predicted positive outlook for Nigeria’s capital market this year amid growing fears of macroeconomic vagaries, insecurities and other downside risks.
They, however, hinged their cautious optimism on a mix of factors, including increase in credit lending to the real sector as supported by the Central Bank of Nigeria (CBN) , recovery in crude oil prices, companies seeking fund to recapitalize, positive impact of Brexit deal between the UK and European Union and the roll-out of COVID-19 vaccine among others.
A lecturer in Capital Market Studies at the Nasarawa State University, Professor Uche Uwaleke said the primary segment of the bonds market would be active in the financial year as a cheaper financing option for governments and corporate entities.
The Don who is also a stockbroker advised the Federal and State Governments on the need to privatize moribund companies and sell the states through the capital market.
According to him, the 2021 budget has a huge fiscal deficit of over N5 trillion to be financed largely via domestic borrowing.
“This means the primary segment of the bonds market promises to be active in 2021.
Similarly, compared to this year, the primary segment of the equities market will be relatively active for companies in the financial sector, especially, those seeking funds to meet recapitalization requirements”, he said.
However, Uwaleke explained that a major risk to the capital market outlook would be the intensity and spread of the second wave of COVID-19 pandemic, external shocks from the international oil market the impacts on the Nigeria’s external reserves.
“Insecurity poses a key downside risk on the domestic front. All these will dictate the level of foreign investors’ participation in our markets and by extension capital flows” said Uwaleke.
The Head of Trading, Apt Securities and Funds Limited, Mr. Jamiu Kayode, stated that COVID 19 had not been as bad in Nigeria as it is in developed countries, adding that FX shortages had made business in Nigeria difficult, especially for portfolio investors who cannot repatriate their money easily.
Speaking with THE KERNEL, Jamiu stated that small businesses had also resorted to the parallel market to source FX at a significant premium to the official rate, resulting in rising inflation at a time when inflation globally is depressed with contracting demand and falling commodity prices.
According to him, Nigerian stock market rallied in the fourth quarter of 2020, following the excess liquidity in the fixed income space The market ended October with the highest monthly growth that was last experienced in February 2018.
“Foreign participation in the capital market was weakened with a surge in foreign outflows. In the first quarter of 2020, the capital market witnessed severe capital flights as foreign investors divested due to drained confidence in the Nigerian economy.
“Nine months into 2020, total foreign participation stood at N510.25 billion or 65.64 percent of which was outflows from the stock market. This further pressured the foreign exchange market.
“A sum of N5.1 trillion is already in the state to be matured in this year of which a significant portion will find its way into the equities market. With many businesses returning to full operation in 2021, the potential of listed companies recording profits will also improve the performance of the market. The foreign portfolio may remain subdued in the equity market if external reserves position does not improve”, he said.
In his forecast, the Chief Dealer, City Code Investments and Trust Limited, Mr Charles Fakrogha, said the rally in the nation’s Bourse had been mostly driven by increased liquidity from local investors, choosing to invest in the market amidst depressed yields in the fixed income space.
“A sustained market rally would need more structural reforms, including adjustment to the FX market, fiscal reforms, and stabilizing inflation”, Fakrogha said.
On Thursday, November 12, the Nigerian equity market was on a rally that triggered implementation of circuit breaker by The NSE’s management.