Wednesday, January 20, 2021 / 12:32 PM /Nifemi Taiyese for WebTV / Header Image Credit: The Nigerian Stock Exchange
Mr. Oscar Onyema, CEO, the Nigerian Stock Exchange (NSE), has said that 2021 would see Nigeria's premier equities exchange introduce cutting edge products and services as the exchange transmutes into a holding company (Holdco) in line with its demutualization plans. He said this while reporting on activities of the exchange in 2020 and its expectations for 2021.
In a digital conference held within the week, Onyema noted that 2020 was historic for global capital markets as they faced severe headwinds inclusive of an unprecedented health pandemic and a weak global economy leading to manufacturing recessions, low crude oil prices, elevated geopolitical risks, and social unrest.
World markets according to him saw sharp swings and steep losses but the Nigerian market remained largely resilient and orderly amidst rising uncertainties.
"Global Capital Markets lost $18 trillion due to the pandemic from February to March 2020 while several equity market indices lost up to 20% of value in the second week of March when the World Health Organization (WHO) declared COVID19 a pandemic. On March 12, the S&P 500 index plunged 9.5% its steepest one day fall since 1987 market crash" Onyema said.
He further stressed that defying expectations several world markets closed 2020 bullish as global investors reacted positively to US election results, the announcement of vaccines, recovering consumer demand, and stabilization of oil prices and geopolitical risks.
On the Nigerian Stock Exchange, he said renewed investor optimism coupled with improved economic conditions and low fixed income yields propelled a 2020 year-end bull run.
As tracked by Bloomberg, out of 93 global equity indices the NSE All-Share Index (ASI) emerged as the best performing index in the world surpassing the S&P 500 at 16.26%.
Onyema mentioned that the exchange was waiting for regulatory approvals from SEC to finalize its demutualization process.
Looking ahead the NSE CEO said the global economy is projected to stabilize in 2021 and would likely consolidate on growth made in H1 2020, but this may be below pre-pandemic levels. How fast the economy recovers would depend on the speed and coverage of the distribution of coronavirus vaccines, sustained social distancing, and a rise in consumer demand. He noted that the IMF projects the global economy to grow by +5.2%.
Onyema mentioned the appointments of Mr. Temi Poopola as the CEO, NGX, and Ms. Tinuade Awe, the CEO of NGX REGCO as a key step in supporting the NSE's vision to be Africa's preferred Exchange hub.
The NSE boss warned that the second wave of COVID-19 may hit Nigeria with the global economy slipping into another meltdown.
He noted that despite analyst's W-shaped recessionary worries, "The year kicked off on a positive note with the ASI returning 1.72% year-to-date (YTD) after only 9 trading sessions" (see chart 1 below).
Chart 1: NSE All-Share Index Movement Jan. 2020-Dec. 2020
Source: NSE, Proshare Research
Razia Khan, Managing Director, Chief Economist, Africa, and the Middle East, Global Research, Standard Chartered Bank gave a macroeconomic presentation on "Emerging Markets- Outlook and Opportunities in the Nigerian Capital Markets". Khan noted that the broad expectation for 2021 is a global economic recovery with more markets becoming optimistic as coronavirus vaccines are distributed worldwide.
She noted that for 2021 there would be marginal growth as economic agents expect containment of the COVID-19 pandemic.
Standard Chartered Bank's, chief economist, stressed that the discovery of a COVID-19 vaccine has sparked market optimism. She saw a near-term normalization of business activities in response to the scale of the Central Bank of Nigeria's (CBN's) balance sheet expansion.
"In some economies, fiscal policy has also played its part as in some economies there has been more fiscal room to create stimulus than in others. After the global financial crisis there has been a significant amount of balance sheet expansion" she said.
According to Khan, "The key drivers of financial markets globally is easy liquidity and the creation of yield-seeking inflows which is supportive of rising risk appetite and fund flows to developing markets that promise higher returns".
She mentioned concerns around the lasting economic effects of the COVID-19 crisis on Africa which would linger for some time. The economist recalled the volatility that occurred with the withdrawal of capital across emerging sub-Saharan markets between March and April 2020. Khan noted that the pace of capital outflows was becoming increasingly moderated.
The bank analyst observed that the period of African central banks adopting monetary accommodation strategies is largely over. She pointed out that portfolio investors in search of higher yields would still visit African markets, which look interesting and still post good yields (the Nigerian market closed 2020 up by +50.03%).
In terms of FX volatility, Khan cautioned investors not to assume that Sub-Saharan frontier markets would remain as investible as they were before the COVID-19 crisis.
The clear evidence of a second wave should not lead to another severe lockdown, which she termed very negative for growth especially as other markets such as China move into stronger performances in 2021.
"By the end of 2021 and early 2022 there would be a demand for creation of commodities and restoration of economic activities in the trajectory of returning to growth," Khan said.
According to the analyst, "Nigeria unlike other Oil Producing Countries in Africa, had growth before the COVID-19 crisis hit, but witnessed a contraction in 2020, however, with global oil markets better supported and the news of a vaccine it would make an immediate difference to forward-looking markets like oil".
"The real issue is the additional debt burden that many African countries have taken on. In applying for debt service suspension from international financial institutions if it is very clear that a country has an unsustainable debt load action should be taken at the onset to reduce the amount of public debt which will help to achieve debt sustainability" she noted.
She said that the favorable demographics, young population, rapid urbanization, new technologies are long-standing factors that will drive growth in economies like Nigeria. However, the big concern for sub-Saharan Africa's growth prospects remains the place of public investments.
Khan was optimistic that 2021 will bring a technical recovery in growth which would not be enough for Nigeria. She said for Nigeria this is the time when it needs to make significant structural progress to reduce its vulnerability to oil cycles. According to her Nigeria's capital market will play a key role in this.