Friday, January 04, 2018/ 06:30PM / Zedcrest Capital
“POSITIONING FOR HEADWINDS”
As expected, 2018 started out with strong positive sentiments for both the
global and domestic economy, but it however ended on a significantly turbulent
note given several downside risk factors which materialized over the course of
the year.
Global Economy Review
In the Global economy, global growth expectations remained strong at the
start of the year, whilst global financial markets maintained an upsurge
from the tail end rally in the previous year. But as global central banks
adopted a more hawkish monetary stance and trade tensions reverberated across
the horizon combined with a spate of geopolitical confrontations and elevated
policy uncertainty from adoption of more nationalistic policies and withdrawal
from multilateral trade and security agreements, global growth expectations
dampened, whilst tighter financial conditions dampened risk sentiments and
fuelled selloffs in risk assets especially in Emerging and developing economies.
Domestic Economy Review
The Sluggish growth in the Nigerian economy was further
dampened by external sector developments which depreciated rapidly towards the
tail end of the year in tune with the developments in the Global Economy which
pressured capital flows to the economy. The Domestic Financial Markets which
witnessed a strong start to the year with a continued upsurge in equity prices
and significant decline in bond yields, however began to deteriorate
significantly in the second half of the year due to capital flow reversals and
dampened risk sentiments in view of the heightened geopolitical risks ahead of
the general elections expected in early 2019.
Global Economy Expectations
As 2019 dawns, the Global economic outlook remains challenging as several
downside risk factors which materialized over the course of the previous year
remain on the front burner. Major Central banks are expected to maintain a
contractionary stance, whilst Trade tensions and Geopolitical risks continue to
pose threats to the outlook for global growth. We however expect pockets of
value to be found in select Emerging and Developing economies with relatively
stronger macro fundamentals which were significantly downbeat in the wake of
the aggressive US FED rate hikes in the previous year.
Domestic Economy
Expectations
Our outlook for the Nigerian Economy remains dampened by political
uncertainties in view of the forthcoming General Elections. Financial markets
are expected to remain downbeat in H1 19 as offshore and local investors are
expected to maintain a relatively risk off stance on the country. We however
expect the outlook to brighten slightly in H2 19 as political risks abate and
investors get more clarity on the policies and plans of the new Government.
Fixed Income Outlook
In the Domestic Fixed Income Space, we expect the yield curve to remain
inverted over the course of the year, as the CBN is expected to maintain a
tight stance on financial system liquidity, in a bid to rein in on
expected inflationary pressures and maintain stability of the exchange rate,
which would likely remain pressured in H1 19. We are consequently underweight
duration in H1 2019. A gradual return of FPIs in H2 19 should moderate the
yield curve as investors are expected to overweight duration in anticipation of
a further expansion to the domestic economy in 2020, with the economy
expected to gain traction from implementation of key structural reforms.
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Related News
1. T-Bills Market
Trades Bearish as Market Players anticipate Retail FX Funding
2. Bond Yields Retrace Sharply, As DMO Resumes NTB Auction
Sales
3. Despite Year End Funding Pressures, CBN Maintains OMO and
FX Interventions
4. Naira Crashes Below N360 Per Dollar at the Parallel Market
as External Reserves Resume Downtrend
5. Demand Pressures Force c.50bps Rally on 2024 FGN Bond
6. Money Market Rate Decreased As Overnight Rate Fell to
25.08%
7. Markets Close on a Quiet Note as Tight System Liquidity
pushes Funding Rates Higher
8. Investors Look To Secondary Market To Fill Unmet Demand At
Previous Day’s Auction
9. Summary of December 2018 FGN Bond Auction Results
10. DMO’s Weak Borrowing Appetite Forces 10-yr Auction Rate
33bps Lower
11. DMO to offer N70bn FGN Bonds tomorrow as N100bn FGN Sukkuk
Bond Offer Closes
12. Diamond Bank Eurobond Rallies 800bps Following Merger
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