The spread of the COVID-19 disease across the world triggered unanticipated global financial market volatility and Nigeria was not left out, says United Capital Analysts.
The analysts explained that Foreign Portfolio Investments and local investors flew to safety amid the collapse in oil prices and currency adjustments. Investors repriced the risk on naira assets, driving the average yield on Open Market Operation bills and domestic bonds from 13.1 per cent and 10.8 per cent at the end of Dec-2019, to 15.1 per cent and 11.9 per cent respectively as at the end of Mar-2020. Also, the stock market tumbled by more than 20 per cent in first quarter of 2020.
However, in second quarter of 2020, the financial market rebounded sharply, as the yield curve moderated amid optimism in the global and domestic market economy. Also, the equity market almost recovered to its pre-selloff level largely driven by domestic investors who took advantage of the market valuation amid a mild recovery in oil prices in the month of May 2020.
In second half of 2020, we maintain that the fixed income space will remain a corporate issuers’ game due to the sustained low yield environment. However, we expect a mild increase in the yield curve, as the dynamics of demand and supply for debt instruments in second half of 2020 is anticipated to be driven by thinning system liquidity, Foreign Portfolio Investment flows when intervention sales resume, the Central Bank of Nigeria’s resolve to defend the naira using unconventional methods and increased borrowing from the Debt Management Office.
Overall, we expect the yield curve to remain normalized, with a marginal upward shift, as market forces move in favour of demand. For equities, the believe the path remains gloomy, amid pressure on corporate earnings, concerns about the exchange rate and the second wave of the pandemic. As a result, we expect the market to remain highly volatile and ‘short-term gain’ driven.
