Earlier, we hinted that the stock market is clearly the only game in town, thanks to the low yield environment. Thus, we urged reluctant investors to get involved, ahead of huge maturities expected to bolster stock prices. So far, the NSE-ASI has rallied 8.0% MTD, defying the recent social unrest and outperforming peers (up 8.0% YTD). Also, compared to the 31st-Mar- 20, following the COVID-19 induced market crash, the Nigerian Bourse is up 36.1%.
With mouthwatering returns delivered to investors so far, we are continuously inundated with two questions.
- When do you see the interest rate environment turning?
- Do you think the Stock market rally is sustainable?
Well, we think both questions are related, given that a return to double-digit yield environment will clearly discourage the recent bullish sentiment for stocks.
However, we do not see a return to double-digit yield in the interim, no thanks to trillions of naira worth of maturities in the horizon, projected to remain till Q1-2021. Meanwhile, FPIs funds (in several billion dollars) remained trapped in Nigeria due to currency market illiquidity, some of this would find their way into stocks, in search of alpha. Lastly, the few Q3-2020 earnings so far submitted points to stronger than expected full-year earnings, as observed in WAPCO, STANBIC and FLOURMILS. Thus, we do not see a sharp pullback in stock