Wednesday, October 28, 2020 / 10:11 AM / By FBNQuest Research / Header Image Credit: The Nigerian Stock Exchange
The NSEASI crossed a
notable threshold on 02 October, returning to positive territory ytd for the
first time since 26 February. The advance has now widened to 8.0%, compared
with a -3.8% ytd contraction for the Jo'burg all-share and a -32.3% slump in
Nairobi (NSE20). Healthy GDP growth and household spending have been
absent in Nigeria since early 2015. We struggle therefore to explain the
index's relative outperformance although we can point to the removal of fuel
subsidies as a market-friendly reform, albeit one that the FGN chose not to
proclaim from the rooftops.
A handful of listed
companies in Nigeria have reported better-than-expected results for Q3 2020 but
the principal driver in our view has been a change in direction in asset
allocation following the crashing of yields on fixed-income securities (FGN
paper, essentially). The change has its limits, however.
Returns on NTBs are
negligible while even the long end of the FGN bond curve (Mar'50) barely
yields 7.0%. The stop rate for the 362-day paper at the CBN's auction of OMO
bills last week was set at 8.0%.
For the sake of perspective, we should remember that
inflation is running at 13.7% y/y, and that the PFAs and other domestic
non-bank players have been barred from the market in OMO bills since October.
When such bills mature, the temptation for these
investors is to add exposure to domestic equities. The latest data from the
regulator has just 4.8% of PFAs' assets under management held in equities in
August. The most recent comparable figure from its Kenyan counterpart is 17.3%,
For the offshore community, the preferred African market remains Cairo.
This is the only economy in the Middle East and North Africa sub-region for
which the IMF does not project contraction this calendar year.
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