Nigerian stocks look unlikely to shake off their poor start to 2021 anytime soon, with an investor preference for returns available in the local debt market set to persist, according to analysts and investors.

The benchmark Nigeria Stock Exchange All Share Index slipped 3% in the first quarter and the conclusion of a positive annual reporting season leaves few incentives to tempt investors to bet on slightly higher returns from equities compared with the less risky government fixed-income market, said Ayodeji Ebo, head of retail investment at Chapel Hill Denham in Lagos.

“The market will be bearish in the first half, and after this result season we expect a further depression because there will be no further catalysts,” Ebo said by phone. “If I can get a one-year Treasury bill at 7% now, why will I take a risk of 8 or 9%?”

A 50% jump in the key Nigerian index in 2020 has failed to curb the move away from equities. Figures from the Nigerian Securities and Exchange Commission show that more than 90% of the investment pool overseen by the country’s asset management industry is in money market and bond funds. Market participants, especially institutional pension fund administrations, have been rebalancing their portfolios into safer alternatives, said Ayodeji Ajilore at Meristem Securities.

Recent weakness means that Nigerian stocks are trading at a widening discount to the peers in other frontier markets. But don’t expect those valuations to tempt foreign investors to step in and take the place of absent locals, said Emmanuel Adeleke, an analyst at ARM Investment Managers. Non-residents have been discouraged by a shortage of hard currency and this will remain an overhang for equities, he said.

“Liquidity has been thinning out and that will also impact the stock market, as we expect yields to go higher for the rest for this year,” he said. “I don’t see any major fundamentals that would really cause huge inflows back into our market -- the major concerns of foreign guys are still there.”