Friday, January 23, 2015 10:47 AM / FBN Capital Research
Nearing the end of the electoral distraction:
There will be relief in the markets on the conclusion of Nigeria’s current electoral cycle. Policymakers can return to work in the new administration (of whichever party). We expect the deregulation of petrol prices because of the opportunity presented by the collapse in the international oil price. Nigeria’s straitened fiscal and financial circumstances could provide the impetus for the FGN to push ahead with a number of stalled reforms.
Still respectable growth amid turmoil:
In these circumstances we have scaled down and not slashed our growth forecast, to 5.3% this year. Nigeria has a non-oil economy, albeit one overly dependent on oil for budget receipts and fx inflows as a result of policy failings over many years. Robust private consumption and investment remain the drivers of the non-oil economy. We do not hold out much hope for an oil sector revival.
Inflation an overlooked success story:
The explicit target for headline inflation has now been met in both 2013 and 2014. This achievement has barely registered in financial markets, and is set to be repeated this year, too.
Exchange-rate pressures too strong for the CBN:
The gap between fx demand and supply is too large for the CBN to maintain exchange-rate stability. We see a policy rate increase from the MPC, another devaluation and probably some more administrative measures but also an end-year interbank rate of N200 per US dollar.
Neutral on both equities and fixed income:
Despite last year’s -16.1% sell-off in the All Share Index (ASI), we expect the index to be down -1% in 2015, implying upside potential of 15% from current levels. For fixed income we see a gentle widening of FGN bond yields amid domestic fiscal strains and the global flight to quality, and favour NTBs for short-term trading plays.
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