FBNQuest Merchant Bank has said that following volatility in the economy, the Nigerian equities market is looking set to end the year weak. Tunde Abidoye, Head, Equity Research, FBNQuest Merchant Bank, while speaking at a media engagement webinar yesterday, said it was looking set to be another weak year for equities as ASI is currently down by-4.6 per cent year to date (ytd) after two straight years of losses.
He explained that YTD the NSE had underperformed relative to most markets excluding Kenya, which stood at -16.3 per cent. Looking at historical performance since 2017,the NSE’s underperformance is even worse at -3.8 per cent return vs. c.+51 per cent, +108 per cent and +12 per cent for the S&P 500, Nasdaq and Jo’burg exchanges. Kenya also returned +5 per cent.
The key drivers include issues around fx liquidity, lower oil prices, reversal of capital flows following the COVID 19, and weak GDP growth (-6.1 per cent Q2). Performance not also helped by stimulus driven rally in the US market. Nigeria now faces the two twin deficits fiscal and current account. He noted that although the market had clawed back a bit of its losses since in April, stocks were still looking very cheap based on fair value estimates. He stated, however, that equities may benefit from the large pool of liquidity from maturing fixed income.
Abidoye noted that the most pressing issues for banks were those of asset quality and a rise in their cost-of-risk. “However, thanks to the regulatory forbearance by the CBN, banks have embarked on sizable restructuring of their loan books – c.41.5 per cent of the sector’s loan book. Regardless, provision for loan losses for banks under our coverage tripled y/y on average. Sector NPL ratio still as single-digit of c.6.4 per cent as at end-June 2020 vs 6.6 per cent end-April 2020.