A Tale of two markets – Capital Market Review November 2020

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The Nigerian capital market witnessed a historic month on two fronts buoyed by increased system liquidity in the past month. Daily OBB and ONN rates remained low amid buoyant system liquidity.

In November 2020, the equity market posted its best monthly gain in 2020, up 14.8%m/m. November’s performance was the highest m/m return since January 2018 rally when the market posted 15.9%, sending the Index past 42,000 index points.

That rally was bolstered by increased liquidity emanating from the creation of the NAFEX (I&E windows) which peaked in Q1-2018. The recent Nov-2020 rally was mostly led by increased system liquidity resulting from an easing policy stance and a low yield environment.

Notably, Treasury yields had crashed and reached all-time lows at the first Primary Market Auction of the month. At the second auction and most recent PMA last year, rates were further depressed with the one-year paper stop rate closing at 0.15%.

The low yield environment in the short-term treasury reflected in the bond space, as average yields declined by 20bps to 3.08%. Investor’s appetite remained for long term Nigerian government instruments.

Although we have observed profit-taking in the equities market since the second week of November, we expect the increased system liquidity (N1.7trn of incoming OMOs maturities in December) to buoy demand for equities in December.

We also expect rates for treasuries barring any policy change to dampen further.

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