With about N5trillion deficit in the 2021 nation’s budget to be financed by foreign loans, economic experts have called on the federal government to explore the booming capital market to fund the budget.
The National Assembly had earlier passed the N13.5trillion 2021 national budget into law, with about N5trillion still expected to close the budget funding deficit.
With the nation’s capital market outperforming its peers across the world by pulling N8trillion investments in 2020, the experts are now charging the government to consider raising the budget funding deficit through the nation’s flourishing capital market.
The managing director of Sofunix Communications and Investment Limited, Mr Sola Oni said demand for equities have strongly enhanced market upswing as yields on other asset classes, especially fixed income securities are low, hence, the need for the government to patronise the market.
He said, “The Central Bank of Nigeria’s policies that encourage credit to the real sector in an environment of low interest rate are expected to be sustained. We expect the federal government to utilize the market to finance the N5 trillion budget deficit for 2021 through the market.
“States governments can also take advantage of the Capital Market to mobilize funds for development projects. This will have multiplier effects on transactions on the Exchange.”
Expressing his optimism of a better investment returns in the capital market, he said, “If the introduction of vaccines to combat COVID-19 is pursued vigorously, it will enhance operations of quoted companies, boost return on investment (ROI) and attract more investors into the market.
“However, it is hoped that security issues would be addressed to reduce country risk while another wave of COVID-19 pandemic shall not scuttle all projections.”
Projecting a positive outlook for the market in 2021, financial economist and Professor of capital market at the Nasarawa State University Keffi, Professor Uche Uwaleke, noted that the outlook for the Nigerian capital market’s in the post COVID-19 era is positive.
He stated: “The market has performed well despite the COVID-19 pandemic. However, the second wave of COVID -19 in developed countries like the UK and US is likely to have an impact on capital importation especially foreign portfolio investments.
“Furthermore, there is likely going to be a possible collapse in international crude oil price, depletion of external reserves and exchange rate pressure if the pandemic is not contained effectively.
“We have had good news that there is a vaccine and so what the government needs to do is to pursue aggressive export base diversification to reduce vulnerabilities to external shocks and boost external reserves, tackle insecurity and continuously improve ease of doing business, address infrastructure gaps through PPP, issue more of infrastructure bonds such as Sukuk and Green bonds which are tied to self-liquidating projects and deploy policies favourable to stock market growth and which support economic recovery”.
On his part, chief executive officer, Emerging Africa Capital, Oluwatoyin Sanni, believes that the outlook for capital markets globally is positive and will be driven by the gradual return to businesses.
She said, “We know that there is a second wave but we also know that there is a vaccine on its way to us and psychologically that will be an encouragement to investors. Furthermore, the implementation of the African Continental Free Trade Area Agreement (AfCFTA) across Africa will see opportunities for some of our larger companies to make a foray into the African markets.
“We know that there will still be renewed lockdowns in the UK and new strings are coming up but I think the worst is over and 2021 will not be anywhere near 2020. I say this because the economy has learnt how to deal with the virus and recognized that total shutdown of activities is not the best way to go, especially for developing economies like ours and so as long as the responses are pragmatic, the outlook for the capital market will more likely be favourable.”
For his part, a stockbroker, Charles Fakrougha, said companies will remain resilient and there will be improvement in the performance of the Nigerian capital market.
He, however, noted that government has to play its own role in creating an enabling environment to see the much-needed recovery in Q1, 2021.
“We do not have to be too optimistic but optimistic with a focus as there would be challenges but I believe that we will see some form of improvement,” he added.
LEADERSHIP Weekend recalls that investors’ investment on the Nigerian stock market grew by N8.099 trillion in the year 2020, making the Nigerian Stock Exchange (NSE) the best performing market in the world Exchanges.
NSE surprised many in the face of global economic meltdown induced by COVID-19 pandemic to rank the best in the world’s stock markets.
A Bloomberg report said Nigerian stocks are headed for their highest annual gain in seven years riding on low yields in fixed-income markets.
Nigeria’s equities benchmark index recorded its highest return, rising 45.7% this year, according to the report. The report said it’s the most among 93 equity indexes tracked by Bloomberg, and makes the NSE the best performing stock market year-to-date.
The unprecedented performance was attributed to investor’s appetite for riskier assets, which have remained strong due to persistent low yield on fixed-income instruments, Bloomberg said, citing Chapel Hill Denham’s note to clients last Tuesday. It added that it has been buoyed by traders positioning for Dangote’s share buyback programme.
Denham said the equities will continue to outperform bonds in 2021 given the current overstretched fixed-income valuations.
The report said the market reached its highest level since June 2018.
Moreover, the NSE All Share Index, which tracks the general market movement of all listed equities gained 50.03 per cent to close the year at 40,270.72 basis points from 26,842.07 points at which it opened trading for 2020. Similarly, market capitalisation, the total market value of listed companies’ outstanding shares rose by N8.099 trillion, closing higher at N21.057 trillion, compared to the opening value of N12.958 trillion for the year, 2020.
Growth in the equities market has been driven by domestic retail and institutional investors targeting Nigerian companies with strong fundamentals, expecting that they will weather the storm of the COVID-19 pandemic and be able to distribute dividends to shareholders.
The total value of transactions executed by domestic investors on the Nigerian Stock Exchange (NSE) stood at N1.24 trillion in the first 11 months of 2020. It is also evident that the equities market continues to respond positively to macroeconomic policy changes such as the cut in Monetary Policy Rate (MPR) by 100 basis points from 12.5 per cent to 11.5 per cent by the Central Bank of Nigeria (CBN) in September 2020 and a low yield environment.
The Exchange has remained resilient even in the face of the COVID-19 pandemic. It would be recalled that on November 12, 2020, the NSE All Share Index (ASI) posted its largest daily gain in more than five years. The ASI rose beyond the set threshold of five per cent, triggering a 30-minute trading halt of all stocks for the first time since the circuit breaker was introduced in 2016.
Speaking on market performance for 2020, analysts at Cordros Securities Limited had stated: “The gains this year were led by what we tagged the ‘best COVID-19 defensives’, the Telco stocks. Local investors piled into MTN Nigeria Communication (MTNN), whose earnings were resilient and provided a significant price upside. In comparison, foreign investors flocked to the dual-listed Airtel Africa as an alternative means to repatriate funds.
“Industrial Goods stocks, mainly the big three Cement firms, Dangote Cement, BUA Cement and Lafarge Africa also lent a hand. Investors increasingly opted for these ‘cyclical’ companies, whose earnings growth are tied to the economic performance and those whose earnings performed better than initially expected as the government eased lockdown measures.
“Investors also looked to the Banking stocks, particularly Guaranty Trust Bank and Zenith Bank, as they offered best-in-class dividend yields and recorded better than expected earnings despite the effects of the pandemic.
“Oil & Gas stocks declined on average, driven by sector heavyweight SEPLAT Petroleum Development Company (SEPLAT), whose earnings suffered from the oil price crash. However, reforms in the downstream subsector offered a boost to oil marketers’ stocks, like Mobil Nigeria and Total Nigeria both surged in the year as the removal of the PMS retail price cap allowed the companies to enjoy margin expansions.”