Expect turbulent domestic capital markets in Nigeria, others in 2020—Cordros
Leading capital market investment group, Cordros Capital Group, has envisaged turbulence across emerging markets capital markets, saying “In our view, we are entering a more challenging investment landscape in 2020.”
“This is because, the combination of a lack of market-friendly reforms locally, a weak sovereign fiscal position, lingering global trade protectionism, and weak global growth should result in somewhat turbulent domestic capital markets.
Giving further analysis on its latest report, the group revealed that “Our base case for equities posits muted stock market performance for the year, culminating in a replay of the 2014-2016 period, wherein the market declined for three consecutive years, losing a cumulative 39.7%. Continuing, the report added that “Fundamentals are not strong enough to drive a natural correction in the equities market, however, recent policy directives from the CBN might offer some respite to the domestic bourse in the absence of much needed market friendly reforms. Broadly, the themes for the equities market in 2020 remain the same as in 2019, with domestic and external factors as the major drivers.
It said “For the fixed income market, our expectation for yields in 2020 is closely linked to the current sectioning of the fixed income market, and how long it is likely to last. In our view, this will be the major determinant of the direction of rates next year, among other factors including (1) persistence of trade tensions and how that will impact global growth, and the attendant impact on capital flows into EM and FM countries, (2) policy response in major and the impact on the rate environments in these jurisdictions, (3) CBN’s policy initiatives to boost credit to the private sector and (4) willingness of the MPC to maintain positive real return to investors.
“The still substantial maturity profile in Q1-2020 is likely to see yields become depressed as local investors re-invest OMO maturities in an NTB market incapable of absorbing the volumes. “That being said, the CBN will most probably keep OMO yields attractive to forestall capital reversals which could exert pressure on the foreign reserves,” Cordros Capital noted.