Nigeria : How equity market faired in Q2 2021-PwC
Nigeria : How equity market faired in Q2 2021-PwC
The second quarter of 2021 marked three consecutive quarters of economic growth (year-on-year) as the Nigerian economy continues to recover from the headwinds experienced in 2020. According to the National Bureau of Statistics (NBS), real gross domestic product (GDP) grew year-on-year by 5.0% in Q2 2021.
This analysis was published by PwC’s Capital Markets Update that focuses on equity and debt. The current Update analysis which is based on NBS publication, said that capital importation into Nigeria stood at $2.79billion in H1 2021, a 61% year-on-year decline when compared to the $7.15billion recorded in H1 2020. Of the $2.79billion, Foreign Portfolio Investment (FPI) accounted for 54.8%, while other investments and Foreign Direct Investment (FDI) accounted for 36.8% and 8.4% respectively.
In terms of macroeconomic policy, in line with the CBN’s drive to unify the exchange rate, the NAFEX rate was adopted as the official exchange rate in May 2021, signaling a naira devaluation by 7.6%. The challenging macroeconomic landscape impacted the performance of the equities market, as the Nigerian Exchange Group All Share Index (NGX ASI) posted a negative return of -5.87% in H1 2021.
Equity market activities started on a positive note, with the NGX ASI reaching an all year high of 42,412 points in January 2021, following a 50% return recorded in 2020. However, these gains were gradually eroded as the upturn in yields in the fixed income markets, rising inflation, adverse exchange rate movements and instability, weak participation of foreign portfolio investors, and profit taking by investors led to sell-offs.
As at June 2021 year-to-date, returns on the equities market proxied by the NGX ASI dipped by -5.87%, while market capitalisation shed N1.297trillion (a dip of 6.13%).
Relative to other global and emerging market indices, the Hang Seng Index (4.93%), FTSE 100 (10.90%), S&P 500 (14%), FTSE SA (8.74%), Nairobi ASI (14.08%) all recorded positive returns while the EGX 30 recorded a negative return of -5.43% as at June 2021 year-to-date. In the West-African sub-region, the Ghana Stock Exchange posted a positive return as the GSE composite index recorded a 36% increase as at H1 2021.
In terms of secondary market activities, domestic retail and institutional investors accounted for 32% and 46% respectively, with foreign participation representing 22% of trading activities in H1 2021. While the IPO market remained inactive, issuers continue to take advantage of the capital markets to fund their growth objectives; a total of N13.6billion was raised by two issuers in follow-on rights issues as at 3 September 2021.
The yield on the benchmark 10-year FGN bond increased from 7.3% as at the end of 2020, to 12.7% in June 2021 and hovered around 11.4% as at the end of August 2021.
Rising inflation coupled with the dip in stock market returns meant investors have had their interest increasingly skewed towards fixed-income assets, thereby offering corporates incentive to access funds needed for growth, debt refinancing among other uses.
In H1 2021, landmark corporate issuances include the N41.21billion issuance by Fidelity bank in February. The 10-year bond was the largest by a Nigerian bank. Furthermore, the market also witnessed the debut N110billion issuance by MTN Nigeria Communications Plc in May – marking the first-time issuance by a telecommunications company. Proceeds are to be channeled towards refinancing existing debt, as well as developing infrastructure. Summarily, a total of N246.24billion was raised in 11 corporate bond issuances in the first half of 2021. Over the last five years, the market has seen a 23% compound annual growth rate in the value of corporate issuances.
Furthermore, sub-nationals are increasingly adopting alternative financing structures to fund critical infrastructure projects through the private debt market amidst dwindling statutory transfers from the central government. This demonstrates the potential of the private debt market, which is at its nascency, in unlocking private investments for infrastructure funding.
Over N2trillion has been raised through the commercial paper market between 2017 and June 2021 as large corporates and blue chip companies continue to access the CP market for their short-term funding and working capital from a diverse pool of investors. In H1 2021, a total of N237.7billion was raised in 33 commercial paper issuances by 13 entities.
The industry spread shows that the financial services and telecommunications sectors had 50% and 31% share respectively of the value raised in H1 2021, with consumer goods and real estate having 9% and 4% respectively, and 6% represented issuances from other sectors.
MTN Communications Plc had the largest issuance in H1 2021, with a 31% share (N73.5 billion) of the total value raised, followed by Coronation Merchant Bank limited and Union Bank Plc with 22% and 15% share, respectively.
