Analyst: Domestic Investors’ Dominance Shields Stock Market from Global Headwinds

Kayode Tokede

Analyst at Parthian Group has expressed that dominance of domestic investors in the Nigerian stock  market is a good development because it shields the market from the impacts of funds outflow from emerging markets and global headwinds.

Speaking recently at the February 2023 forum of the Finance Correspondents Association of Nigeria (FICAN), the Head of Investment Research, Parthian Securities, Mr. Oluwaseun Dosunmu advised those with interest in stock market should to focus on : top 20 fundamentally strong stocks in terms of market capitalization on the Nigerian Exchange Limited (NGX); stocks that are liquid and those that pay good dividends.

The theme of the forum was “Assessing Nigeria’s Financial Sector and Outlook for the Economy in 2023”.

Speaking earlier, the Head, Global Markets at Parthian Partners, Mrs. Ronke Akinyemi, who was speaking on what to expect from the market that will guide investment decisions, disclosed that there will be Public-private partnerships to reduce pressure on budget funding, just as there will be debt issuances on the back of these partnerships and opportunities to invest in these issues.

According to her, “Uptick in interest rates is however anticipated in second quater, resulting from a reduced level of liquidity and huge budget deficit. We expect the market to commence this year with some depression in yield, owing to expected liquidity elevation in first quarter.”

Generally, the investment expert noted that the market is expected to be choppy and largely driven by political transitioning, oil price fluctuations, trade wars, possibility of interest rate hikes by other economies and risk off/on sentiments.

According to her, the Monetary Policy Rate (MPR) is likely to increase and credit conditions may remain tight in Q1-23

Further, the experts agreed that there will be increased financial speculation and weakened investors confidence.

Earlier, Akinyemi recalled that after the Q2-2022 selloffs triggered by higher interest rate in the fixed income market, the Nigerian stock market was volatile with many stocks trading at substantial discounts and delivering greater dividend yields than fixed income space.

As such, the stock market created a massive opportunity for bargain hunting from mid Q2 to Q4 2022, pushing the 2022 year-to- (YTD) return to 19.98per cent.

On a positive note, she said there was  improved growth level as the economy began to recover from the impact of the pandemic.

Nigeria became one of the first sovereigns to access funds from the International Capital Market since the start of the Russian-Ukraine war,when it raised about $1.25billion on a 7-year paper at a yield of 8.375percent.

Since issuance in March 2022, the yields on the Nigeria 7-year Eurobond issue have increased by 2.5percent points to 10.9percent as of 30th June 2022, from the 8.4percent recorded on 18th March 2022.

She said Non-performing loans are likely to increase among lenders as high borrowing cost might raise default risks. PSB license might erode banks’ Non-Interest Revenue

“Regulatory blocks remain a risk for the industry, even as the sector will benefit from improved economic activities

“High borrowing cost to weigh on business profits,” she explained.