PwC Predicts Increased Capital Market Investors Participation

By Nse Anthony-Uko
(Sundiata Finance) – Following the recent announcement of the economy marginally exiting recession, PwC Nigeria has said in the medium and long term, activities at the Nigerian Stock Exchange (NSE) is expected to be on an increase as the country continues to see better economic indicators.

In the short term, the consultancy firm said it expects inflation and hence yields, to start to drop as the federal government reaches its debt ceiling, which in turn may lead to an increase in domestic corporate bond issuances. PwC Nigeria revealed this in its Nigerian Capital Market Update released for September 2017.

It stated that “In the second quarter of 2017, Nigeria’s economy returned to positive growth as real gross domestic product (GDP) increased by 0.55 per cent, after five consecutive quarters of negative growth. This recovery was driven by improvements in the oil sector, which expanded for the first time in seven quarters.”

The research firm also noted that the performance of key sub-sectors such as trade and manufacturing suggests the economy continues to benefit from improved liquidity in the foreign exchange market, saying this renewed confidence has resulted in a rebound in foreign investments with Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) up 49 per cent and 128 per cent respectively in Q2, 2017 as compared to the same period in the prior year.

It added that investor appetite for equities has increased with the NSE-ASI 24.4 per cent higher between January and June 2017, recovering from a 6.2 per cent contraction between January and December 2016.

According to the firm, consistent with global sentiments, we also believe cross-border investors will turn bearish on emerging market bonds, in line with rating agencies’ sentiments. In the medium and long term, we expect to see activity pick up in the equity capital markets as Nigeria continues to emerge from the recession and companies execute plans shelved in 2015 due to uncertainty.

According to the report, there have been no initial public offerings on the Nigerian Stock Exchange, or by Nigerian companies on foreign exchanges, to date, in 2017.

However, the company saw some further offers and activity in the secondary market as Foreign Portfolio Investors increased significantly, which it termed a positive indicator for the recovery of the Nigerian equity capital markets.

It said the domestic corporate bond market had therefore tapered in 2017 relative to activity observed between 2014 and 2016, adding, “We do, however, see increased activity in the near term from large Nigerian corporates looking to refinance for longer tenors, and other issuers looking to finance large projects with the support of guarantees from new players in the market such as InfraCredit, established by the Nigeria Sovereign Investment Authority in collaboration with Guarant Co.”

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