Nigerian Economy Going through Turbulent Times;Global Economy witnesses Increased Volatility

Proshare

Friday, October 30, 2015 09:51AM / CBO Investment Management

Nigeria: A Review of Q3 2015

Macro Economy

 

  •          The Nigerian inflation rate edged higher to 9.3% in August, compared to 9.2% in July;
  •          The CBN kept the MPR at 13% however, reduced the CRR to 25% from its former level of 31%;
  •          The CBN commenced the implementation of the Treasury Single Account (TSA), with about N2tr reported to have been withdrawn from commercial banks and deposited with the CBN.


Socio-Political

  •          The CBN banned the acceptance of foreign currency deposits in cash by commercial banks;
  •          The president has appointed a new National Security Adviser and service chiefs to tackle the Boko Haram insurgency ravaging parts of North-East Nigeria;
  •          Senate President, Bukola Saraki appeared before the Code of Conduct Bureau on the 13-count allegation of corruption & false declaration of assets;
  •          President Buhari has submitted the full ministerial list to the Senate.


Financial Markets

  •          The Naira depreciated against the dollar by over 4.00% in the BDC market since July despite the interbank market staying relatively stable;
  •          The NSE All Share Index has achieved a YTD return of -12.88%;
  •          CBN officially stopped the sale of dollars for a list of 40 items to reduce pressure on the naira;
  •          Nigeria’s weighting in the JP Morgan indices was reduced to 0.79% in September.


Key Investment Sectors

  •          Seven Energy commenced gas supply to the 560MW Calabar power station built under the NIPP;
  •          Helios and Vitol acquired 60% of the economic rights and 51% of the voting rights in Oando’s downstream business for US$276mn;
  •          Actis sold its majority shareholding investment in Mouka Limited, to Abraaj, a private equity investor.
  •          Kagiso Tiso Holdings acquired a significant minority stake in Nigerian healthcare diagnostics company, Me Cure Healthcare.


The Impact of Risk on Investment

  • ·         Reduced political risk with successful transition to a new government;
  • ·         The new government has made security one of its cardinal objectives and intends to eradicate the Boko Haram insurgency;
  • ·         Anti-corruption mantra - not business as usual;
  • ·         Investor confidence increased as a result of the peaceful transition to a newly elected government;
  • ·         FX risks increased for large firms operating in Nigeria with Dollar transactions. 

 

 

Global Economic Highlights
 
Global Overview

The global economy has witnessed increased volatility over the past few months as emerging market stocks and currencies have experienced a massive sell-off due to concerns about the global economy. Investors are bailing out of emerging markets as the global economic picture deteriorates.

 

Prices of speculative grade debt/bonds rated BB/Ba or less, have fallen along with stocks as worries about China, the Eurozone and global economic growth intensify.

 

Developed Economies

 

 

US Economy – Recent data confirms rate hike imminent

  •          U.S. economy has been growing at an average annual rate of 2.7%, almost an entire percentage point above the estimated potential growth rate of 1.8% in the last three years;
  •  
  •          Activity in the service sector is particularly buoyant; indicators of employment creation, new orders, export sales and order backlogs have all increased over the past months;
  •  
  •          Consumer price data released for July is 0.2% higher than a year before. The core inflation rate, which excludes energy, put the increase at 1.8%;
  •  
  •          Most FOMC members currently judge that the conditions for policy firming has not yet been achieved, but also noted that conditions were approaching that point.


Euro Area – Conditions gradually improving

  •          A depreciated euro and low oil prices have acted as main drivers of GDP growth in the Eurozone. The Euro has depreciated by 8% against the US Dollar in 2015 due to the economic turmoil in Greece;

  •          Confidence in the euro zone’s economy edged up to a new four-year high in August as rising domestic demand marginally outweighed a worsening view of export prospects and the mood brightened particularly in France and Spain;

  •          The outlook remains uncertain for euro zone industries as the recent appreciation of the euro in the past month and continued concern about Chinese economic growth will likely have an impact on the zones output in the months ahead.

 

UK Economy – Slowing inflation dampens rate hike expectations

  • ·         The BoE has adopted a more cautious path than the US federal reserve, which is expected to start raising rates in Q42015;

  • ·         The BoE recently upgraded its growth forecasts for 2015, but halved its inflation forecasts in 2015 from 0.6% to 0.3%.

  • ·         Inflation fell to zero in June and is expected to hover around that level for the next few months before rising on a more sustained basis towards the middle of 2016;

  • ·         The prolonged weakness in price pressures is the result of a new fall in oil prices, as well as the strength of the sterling

 

Japan Economy – Economics growth slows down again

  • ·         Japan's economy shrank in Q2 2015, marking a setback for the government's reform policy;

  • ·         Economic growth between April and June contracted by 0.4% compared with the first three months of the year;

  • ·         Japan's economy shrank at an annualised pace of 1.6% in the quarter, following a revised expansion of 4.5% in the first quarter;

  • ·         Lagging exports and sluggish consumer spending were the biggest contributors to the drop in growth;

  • ·         Japan’s weak yen also raised the prices for many food items, prompting households to tighten their purse strings.

 

Emerging Economies 

China – Stalling global growth

  •          The Chinese economy is growing at its weakest pace in a quarter of a century this year;
     
  •          China reported a sharp fall in exports and a slide in producer prices to a near six-year low in July;
     
  •          Exports fell by 8.3% in July, far worse than expected and the producer price index was down 5.4% from a year earlier;
     
  •          China devalued the Yuan by almost 1.9% in Aug, the most significant downward adjustment to the yuan since 1994 in a move to make the exchange rate more market-oriented;

  •          This will make imports from China cheaper. The Chinese currency is down 4.0% versus the dollar in 2015. 

 

 

Brazil – Economy in recession

  •          Rising inflation, unemployment, tightening of operational credit and declining domestic consumption has necessitated the devaluation of the Brazilian Real

  •          Brazil’s economy entered into a recession after reporting two consecutive quarters of decline in growth.


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