What is your assessment of the performance of the equity and fixed income market in 2021 and what are the prospects for 2022?
Last year was quite interesting, in fact, the market witnessed the rise in FGN bond interest rates and also saw an increase in inflation before things started to go down.
This therefore led to higher yields. There has been a slowdown in 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 there was a situation where people didn’t really want to take those brands 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 stable. I don’t think rates in particular would rise significantly in Q1 and maybe early Q2. I think starting in the second half of the year, you might see some rate increases, which could cause the prices of those bonds to depress.
But it will then somehow bode 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
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, for them it’s like I don’t didn’t get bitten a second time. So that’s why people pull back.
I believe people are going to start looking at the world differently, go back to what they understand and in the long run there’s going to be a lot of consolidation even around traditional stockbrokers you’ll find because people are going to be a lot smarter as far as how they get 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 those things because what’s happening is in Nigeria today if you buy shares you’ll have a CSCS account but the registrar in America doesn’t know you not who is local. So what they see is the conduit you’re using and that person is running 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 happening in the country right now, Crowdyvest came out to say they have no money because Agric has gone bad and many of them also said the same. The problem is that the system is so intertwined and many FinTechs are not financial professionals.
If you look at most FinTechs, they’re mostly young people who are just starting to understand the 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 it’s not malicious they’re actually doing 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 Cs 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 do well, but not all of them will be lucky enough to be able to absorb the losses. That’s why I believe there will be a lot of consolidation in this space.
With the federal government’s decision to continue to subsidize fuel, creating a larger budget deficit, what impact would this have on fares going forward?
My vision for 2022 is that interest rates will eventually rise, but I think that could be controlled. There was a budget and with it comes two sides; there is the cost side and the revenue side and when you think about it, there are certain elements of the budget that always have to be paid for, like; salaries, recurrent expenses, etc.
But when it comes to things like grants, the real issue is that the contribution of the Nigerian National Petroleum Company Limited (NNPC) to the Federation Accounts Allocation Committee (FAAC) would be drastically reduced due to the issue. grants.
Yes, the absence of deletion of subsidiary will lead to an increase in prices. 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 sure they would go much higher beyond 200 to 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 base has more local players than FDI, so there won’t be panic selling because we don’t know who’s coming next. I think that impact would be greatly reduced. So I don’t think this is a doomsday scenario for stocks I actually think for 2022 the stock market would be bullish and I’m actually quite bullish in the Nigerian stock market I actually think it would actually outperform a lot of emerging market stock market.
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 .
