FBNQuest 2020 Research Outlook: Global Headwinds Moderating, Domestic Calm

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Thursday, January 23, 2020 / 05:43 PM / FBNQuest Research / Header Image Credit: FBNQuest

 

The global picture to the fore

We welcome the pause in easing by the Federal Reserve: more cuts would have signaled that global headwinds required a response and/or that the world's largest economy was in difficulties. Neither would help Nigeria or EMs generally. We also welcome the resilience of the oil price, underpinned as ever by geopolitics. Any further rapprochement between the US and China over their trade dispute would be supportive of demand.     


Another year of unexciting growth ahead

We see growth inching forward in the direction of 3.0%, based upon a small fiscal stimulus, a modest rise in oil output, selective private investment and, finally, an increase in credit extension. The rebuilding of household wallets is slow work-in-progress despite the settlement of some salary and other arrears. At some point, the introduction of the approved new minimum wage will also provide a boost. Some substantive reforms by the FGN alongside its success with the 2020 budget would help.


The first budget test passed, more to follow

Having pushed the budget through with great speed, the challenge for the FGN is to boost revenue collection and capital expenditure. 


The fx regime to survive some turbulence

The leading macro story is the solidity of the fx regime in the face of reserves depletion and the exit of some foreign portfolio investors (FPIs). We think that the authorities will be able to hold the line although their task would be easier if the FGN was to return to the Eurobond market.


Correction in debt market, potential 19% return for equities

We doubt that the surge in FGN naira debt markets is sustainable and see a little retracement this year of up to 100bps for mid-curve bonds. Although fundamentals are still challenged, asset rotation by domestic institutions is helping the equities market. We forecast a year-end close of 35,000 for the All Share Index (ASI), +30% from end-Dec 2019, +19% from current levels.

 

Central economic indicators

 

2017

2018

2019E

2020E

Real growth (in per cent)

0.8

1.9

2.3

2.6

CPI (in per cent; y/y Dec)

15.4

11.4

12.0

12.2

Monetary policy rate (%; year-end)

14.0

14.0

13.5

13.5

Current account/GDP (in per cent)

3.5

1.5

-4.1

-1.8

Bonny Light (end-period spot; US$/b)

65

62

67

66

Bonny Light (average spot; US$/b)

54

73

65

68

Official fx reserves (in US$ bn)

39

43

39

35

N/US$ (NAFEX, end-period)

360

364

365

366

N/US$ (NAFEX, average)

395

362

362

364

 

Sources: CBN, NBS, Bloomberg, FBNQuest Capital Research

 

 

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