“Nigeria will outperform emerging markets in 2022”


In this interview, Parthian Partners Managing Director Oluseye Olusoga talked about equity markets, fixed income and how upcoming events will shape the market as well as other industry issues. Nume Ekeghe presents the exceptions:

Can you give an assessment of how the equity and fixed income market performed last year and what do you think the outlook for 2022 would be?

Last year was quite interesting, in fact you had the rise in FGN bond interest rates and you also saw an increase in inflation before things started to go down. This therefore led to higher yields. You’ve seen a downturn in terms of volumes in the fixed income market, and obviously, as you know, when yields go up, prices go down. So businesses like insurance companies would have felt the heat or the impact of these rising yields. And so, then you have a situation where people don’t actually want to take those marks on the market losses, so to speak. For the banks, I think they were doing well, they were doing pretty well.

I think going into 2022, for the first half of the year, things should be pretty flat. I don’t think rates in particular would rise significantly in Q1 and maybe early Q2. I think as you start to enter the second half of the year, you might see some rate increases, which could cause the prices of these bonds to depress. But that will bode then in a way, a good entry point if you wanted to get higher returns. So I think we should end the year maximum no more than 200 basis points above where interest rates open at the start of the year on government bonds

With the Federal Government’s decision to continue to subsidize fuel creating an even bigger deficit in the budget, what impact would this have on future rates?

My vision for 2022 is that interest rates will eventually rise, but I think that could be controlled. There was a budget and there were two sides, there is the cost side and the income side. And when you think about it, there are elements of the budget that always have to be paid. So things like salaries, recurring expenses, etc. But when it comes to things like grants, the real problem is that the contribution of the Nigerian National Petroleum Corporation (NNPC) to the Federation Accounts Allocation Committee (FAAC) would be drastically reduced due to the issue grants.

Yes, the failure to remove subsidies will lead to an increase in tariffs. This would mean there would be a controlled cap on how much NNPC can contribute, which means the government will borrow more. And by borrowing more, that means rates would go up. But I say they won’t go as high as people might think because the government has other tools it can use to manage that amount of borrowing. While I think rates would go up, I’m not so bearish that they would go much higher beyond 200-300 basis points.

As the elections approach, the usual trend shows a decline in the equity market, especially as FDI takes capital flight and local investors also take security, do you think this trend will continue?

The stock market base has more local players compared to FDI, so there will be no panic selling as we don’t know who comes next. I think that impact would be greatly reduced.

So I don’t think it’s a doomsday scenario for stocks I actually think for 2022 the stock market would be bullish and I actually think it would outperform Nigeria I’m actually quite bullish on the market Nigerian stock market, I actually think it would actually outperform a lot of emerging market stock markets.

And even if interest rates go up, people are expected to rush in that direction and not so much for equities, which is the general picture. But what I’m saying is because the interest rate, if moved 200 basis points, is still not as aggressive, that’s also why I’m bullish on the stock market.

Many young Nigerians currently like foreign equities over Nigerian equities, what do you think this trend portends for the local equity market?

Personally I see this as a fad and I think because people got burned when they loaned on margin or borrowed money to buy stocks in 2008 and 2009 so to them it’s like I didn’t get beat up a second time. This is why people withdraw.

Now, with US stock markets crashing the way they do, when you’ve invested in US stocks and your portfolio isn’t always trending up, so you’d be very cautious.

And then when you look at what happened to a similar retail app in the US and UK; a company called Robinhood is already complaining about reduced growth and that’s because people are losing money and they now know it’s not always up.

I think a lot of people will learn this, this frenzy will stop and as a result people will come back to buy what they know. I believe people are going to start looking at the world differently, going back to what they understand and in the long run there’s going to be a lot of consolidation even around the traditional stockbrokers that you find around because people will be a lot more smart about how they pull stuff out.

I think all these FinTechs giving access to foreign stocks will also consolidate so there will be less of them because profitability will drop significantly because many of them are not even profitable yet. Thus, many of them will either consolidate or disappear completely.

Then we’ll start having a real test of all these things because what’s happening is that in Nigeria today if you buy shares you’ll have a CSCS account but the US registry doesn’t know you which is local, then what they’re seeing is the conduit you’re using and that person runs something like an omnibus account there. So now it’s about how it plays out when things go wrong when people lose money and then get bored.

Are you saying there is a bubble in the fintech space?

I think there is a bubble there and it is about to burst for most FinTechs in Nigeria. Looking at what is currently happening in the country, Crowdyvest came out to say they have no money because farming has gone wrong and many of them also said the same.

The problem is that the system is so intertwined and many FinTechs are not finance professionals. If you look at most FinTech, it’s mostly young people who started out with technology, and then they fundraise. So, the way a financial company will follow due process, a fintech would just give money to random people without that level of depth and that’s not malicious; they actually do a social good for the economy. And if those people they’re lending to do the right thing, then overall it would be good for the country, but those companies don’t have the resources to monitor who they’re lending to. If this interest rate era continues, many of these FinTechs will struggle to raise their Series C or next rounds and when that happens, the house of cards will collapse. A few of them like Piggyvest who have raised a lot of money will be fine but not all of them will be lucky enough to be able to absorb the losses which is why I think there will be a lot of consolidation in this space .

Can you talk about your business, how it fared over the decade, its milestones, and what new and existing customers should expect from your business?

We started in 2012 and we pretty much wrote the inter-dealer brokerage regulations with the SEC and I was on the capital market master plan committee in 2015 and we spent a lot of time building the fixed income market because we felt that the fixed income market in Nigeria may in fact be bigger than it used to be.

The market has actually grown and we as a company have grown with the market. After doing about 200 billion naira in transactions in terms of transaction value in 2013-2014, in 2020 we were doing about about 2 trillion naira per year in pull volumes. And when you talk about Eurobonds, we were among the first in the country and we went from about $30 million to $40 million in Eurobonds to an annual average of $300 million to $400 million a year.

So for us, we’ve evolved on that basis and we have a strong reputation, especially since we’re big on governance, and then we’re actually looking to solve real problems. We will also seek to grow in terms of the asset management and advisory services we will provide to other financial companies.


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