A report by Cordros Capital Limited has claimed that economic indications unveiled that market yields will remain low in 2021.
Cordros, in its report titled ‘Nigeria in 2021: Positioning in the new normal’ which was presented during a webinar.
According to the report, “Market yields will remain in the low single-digit territory through H1-21, with a moderate uptrend to account for reduced market participation as investors demand for higher yields.
“We anticipate that policy driven actions will result in yields advancing in the treasury bills (OMO) and bonds market.
“However, the segregation of the treasury bills market should keep yields on NTB instruments at near-zero levels.
“Overall, we expect yields to advance to an average of c.7.0 percent for treasury bonds, while OMO instruments settle higher. NTB instruments will remain at low levels given the imbalance between demand and supply.”
On what should be the expectations of investors in 2021, Cordros Capital noted that the market performance in 2021 would be primarily determined by domestic participation which would be supported by the low FI yield environment; liquidity surfeit; investors positioning for dividends and; stronger corporate earnings growth (mostly on the low base in 2020).
The report added: “We expect the ASI to record a positive performance in 2021, albeit substantially lower when compare to 2020.
“ASI currently trades at a P/E (x) of 12.5x, making it just about fairly valued compare with its seven-year average of 12.2x, but still cheaper compared to frontier market peers – MSCI FM (15.1x.).
The market is not over-valued yet, with some major bank stocks trading at close to long term average P/B.There will be periods of profit taking as PMs hit their annual targets. Foreign participation expected to remain weak if FX liquidity issues persist.”
Evaluating the key downside risks to the outlook, the organisation includes a reversal in FI yield direction; significantly lower earnings and dividend payouts; Surge in COVID cases; and Further decline oil prices.
Meanwhile, it noted that the upside risks included sustained period of higher oil prices and increased FX liquidity; devaluation of naira; negative FI yields; better than expected earnings; and widespread adoption of COVID-19 vaccine in Nigeria.
