The case for the weak performance of the Nigerian equities market over the years has been tied back to a dearth of strong, market-friendly policy reforms. At the start of 2020, the plan to gradually remove implicit energy subsidies, alongside renewed impetus to pass crucial oil & gas sector legislation, seemed to be on the cards. We expected this might be the beginning of an institution of reforms that would accelerate economic growth and boost market returns. However, the investment landscape in 2020 so far has mainly been shaped by the unexpected pandemic. The virus outbreak quickly progressed to economic shocks, as many governments across the globe enacted containment policies, leading to significant uncertainties, which in turn resulted in capital flow reversals across regions. 

Many other issues that have remained through the years – weak macros, weak corporate profit expansion, and lack of market-friendly reforms – also pressured returns and could ultimately amplify the length of time before market recovery as activities normalize across the globe. Given this view, our base case, for H2-20, posits muted stock market performance. In our opinion, this will be punctuated by periods of rallies and sell-offs as the global market rebalances. Consequently, our themes for the equities market in H2-20 are built on external factors as the primary driver of market activities.

For Fixed Income, the market was far more volatile than we had initially anticipated, again due to tangential impacts from the pandemic. At the start of the year, we expected that market yields would trend downwards across instruments. While this prognosis was generally accurate, we did not foresee the magnitude of decline or the level of volatility over the period. As expected, the substantial OMO maturity profile over the first half of 2020 resulted in significant demand in the market, which consequently pressured down yields. However, as the country’s macroeconomic fundamentals became more impaired following the significant decline in crude oil prices, market expectations changed, and the trend reversed. 

Looking forward, we believe that market demand will still surpass supply over H2-20, which will result in market yields trending lower; an outcome which would be in favour of the FGN given the even more precarious revenue picture and expectation of prolonged macro weakness. That being said, we expect that yields would be supported from a precipitous decline by elevated inflation expectations, which if crystallizes would translate to even deeper negative real returns.

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