Latest report released by Cordors Capital Group in Lagos has shown that Capital importation in Nigeria still lacks skid resistance, following another 31.2% y/y decline to USD5.85 billion over Q1-20. Given the outbreak of COVID-19 pandemic, which disrupted global economic activities from institutions of lockdowns, together with its pass through impact on domestic economic indices, we were unsurprised that the decline inflows was broad-based, save for other investment (+15.2% y/y).
Notably, FPI and FDI, both of which constitute 77.3% of total flows, moderated by 39.4% y/y and 13.4% y/y, respectively. On the former, flows to equities dipped by 2.5% y/y, mirroring the marked risk asset sell-offs in the same period (ASI: -20.8%). Meanwhile, the segregation of the OMO bills market by the CBN, which engineered deceleration in rates, comes to mind as the driver of the reduced flows to the money market (-41.6% y/y).
According the report, “For the next few quarters, the trajectory of pull and push factors are central in framing our outlook for flows. On the pull side, emerging markets have experienced record portfolio outflows in recent times, larger than during any recent crisis, including the global financial crisis. The blend of the global COVID-19 shock and a significant drop in oil prices led to record-breaking outflows, especially in March (c. USD82.00 billion). For us, the recovery in flows will most likely follow the full resumption of economic activities towards the tail end of the year, which Nigeria should benefit from. On the domestic front, while we expect macroeconomic milieu to deteriorate further, the stronger harmony between the fiscal and monetary authorities should pave the way for a gradual pickup by Q4-20. Hence, we expect capital inflows to ride the wave of stronger economic prospects by Q4-20.
On Capital Markets and Equities, the report averred that “Negative sentiments took precedence in the domestic markets despite the further easing of the lockdown in the country, amid persistent increases in daily coronavirus cases. Consequently, profit-taking was witnessed on BUACEMENT (-4.8%), NB (-3.0%), and some banking stocks. Precisely, the All-Share Index declined by 1.0% w/w, to settle at 25,016.30 points. Thus, the MTD return settled at -1.0%, as the YTD loss increased to -6.8%. Analysing by sectors, the general performance was broadly negative, as losses in the Banking (-3.7%), Oil and Gas (-0.7%) and Consumer Goods (-0.4%) sectors outweighed the positive performances in the Insurance (+2.4%) and Industrial Goods (+1.6%) sectors.”
“In our opinion, risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions. Thus, we continue to advise investors to trade cautiously and seek trading opportunities in only fundamentally justified stocks.