In this interview, the Chief Executive Officer Parthian Partners, Oluseye Olusoga spoke on the equities, fixed income markets and how upcoming events would shape the market as well as other industry relatable issues. Nume Ekeghe presents the excerpts:
Can you give an assessment of how the equities and fixed income market fared last year and what do you think the outlook for 2022 would be?
Last year was quite interesting, actually, you had the interest rate rises of the FGN bonds and you also saw an increase in inflation before things started trending downwards. So that led to yields actually going upwards. You had a slowdown in terms of volumes in the fixed income market, and obviously, as you know, when yields actually go up, prices come down. So, companies like insurance companies would have felt the heat or impact of those yields going up. And so, you then have a situation where people don’t want to actually take those marks to market losses, as it were. For the banks, I think they were fine, they fared moderately okay.
I think that coming into 2022, for the first half of the year, things should be fairly flat. I don’t think rates in particularly would rise significantly in the first quarter and maybe the early part of q2. I think that, as you start going to the second half of the year, you might see some rate increases, which might lead to a depression in prices of those bonds. But which will then sort of portending, a good entry point if you wanted to get higher yields. So, I think that we should end the year maximum no more than 200 basis points above where interest rates open at the start of the year on the government bonds
The federal government decision to continue fuel subsidy, creates an even wider deficit in the budget, how would that impact rates going forward?
My view of 2022 is that interest rates are going to end up higher but I think that could be controlled. There was a budget and with comes two sides, there is the cost side and the revenue side. And when you think about it, there are some components in the budget that always have to be paid. So, things like salaries, recurrent expenditure and so on. But when it comes to things like subsidies, the real problem is the contribution of the Nigerian National Petroleum Corporation (NNPC) to the Federation Account Allocation Committee (FAAC) would be significantly depressed because of the subsidy issue.
Yes, the lack of removal of subsidies is going to lead to an increase in rates. This would mean that there would be a controlled cap on how much money NNPC can contribute meaning that the government is going to borrow more. And by borrowing more, it means rates would go up. But I’m saying that they are not going to go as high as people might actually think because the government has other tools, which they can use to manage that amount of borrowing. Even though I think rates would go up, I am not that bearish that they would go significantly higher beyond 200 to 300 basis points.
As elections approach, the usual trend shows a decline in the equities market especially as FDIs take capital flight and local investors also take safety, do you think this trend would continue?
The stock market base has more local players when you compare with FDIs so there is not going to be a panic of let’s sell because we don’t know who is coming next. I think that impact would be significantly reduced.
So, I don’t think it is a doomsday scenario for equities, I actually think that for 2022 the stock market would be bullish and I actually think it would actually outperform Nigeria, I’m actually fairly bullish on the Nigerian Stock market, I actually think it would actually outperform a lot of emerging market’s stock market.
And even if the interest rates go up, it is expected that people would rush towards that direction and not too much for equities, which is the general overview. But what I’m saying is that because the interest rate, if moved at 200 basis points, is still not that aggressive, that is also why I am optimistic about the stock market.
A lot of young Nigerians presently fancy foreign equities as against Nigerian stocks, what do you think this trend portends for the local equities market?
I see this as a fad personally and I think because people got burnt when they did margin lending or borrowed money to buy stocks from 2008 to 2009 so for them it’s like let me not get beaten a second time. So that’s why people are pulling back.
Now with the US stock markets tanking the way it is tanking, when you’ve invested in the US stocks and your portfolio is not always trending upwards, you would see a lot of caution.
And then when you look at what has happened to similar retail applications in the US and the UK; a company called Robinhood is already complaining about reduced growth and it is because people are losing money and they now know that it is not always in the upward direction.
I think that a lot of people will learn from that, that frenzy will stop and as a result, people will come back to buy what they know. I believe that people will start looking at the world differently, come back to what they understand and in the long run, there will be a lot of consolidation even around the traditional stockbrokers that you find around because people will be a lot smarter in regards to how they put out stuff.
I think that all these FinTech’s giving access to foreign stocks will also consolidate so there will be fewer of them because profitability will drop significantly as a lot of them are not even yet profitable. So, a lot of them will either consolidate or disappear completely.
Then we will start having a real test of all of these things because what happens is that in Nigeria today if you buy equity, you will have a CSCS account but the register in America does not know you who is local, so what they are seeing is the conduit that you are using and that person is running something like an omnibus account over there. So, it is now a question of how does that play out when things go wrong when people lose money and then become weary.
Are you saying there is a bubble in the fintech space?
I think that there is a bubble there and it is about to burst for most of the FinTechs in Nigeria. Looking at what is happening in the country presently, Crowdyvest has come out to say that they don’t have money because agric went bad and a lot of them has also said the same thing.
The problem is that the system is so interwoven and a lot of FinTech are not finance professionals. If you look at most FinTech, they are mostly young people who started with tech and then they raise money. So, the way a finance firm will go through due process, a fintech would just give out money to random people without that level of depth and it is not malicious; they are actually doing social good for the economy. And if those people they are lending to are doing the right thing, then overall, it would be good for the country but those companies don’t have the resource to monitor those they lend to. If this era of interest rate continues, a lot of this FinTech will struggle to raise their series C or next rounds and when that happens, the house of cards will crumble. A few of them like Piggyvest has raised a lot of money will be fine, but not all of them will be that fortunate to be able to absorb losses, that is why I believe there will be a lot of consolidation in that space.
Can you speak on your firm, how it has fared over the decade, its milestones and what new and existing customers should expect from your firm?
We started in 2012 and we practically wrote the regulation around Inter-dealer brokerage business with the SEC I was part of the capital market masterplan committee in 2015 and we have spent a lot of time in building the fixed income market because we felt that the fixed income market in Nigeria can actually be bigger than what it was.
The market has actually grown and we as a business have grown with the market. From doing about N200 billion worth of transactions in terms of transaction value in 2013-2014, as at 2020, we were doing roughly around N2 trillion a year in traction volumes. And when you talk about Eurobonds, we were among the first in the country and we went from doing about $30 million to $40 million worth of Eurobonds to doing on average on an annual basis between $300 million to $400 million a year.
So, for us we have evolved on that basis and we have a strong reputation especially as we are big on governance, and then we are actually looking at solving real problems. We would also be looking to expand in terms of the assets management and advisory services we will be providing for other financial firms.
