Reviews & Outlooks | |
Reviews & Outlooks | |
1479 VIEWS | |
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Tuesday, July 21, 2020 / 11:34 AM / by CardinalStone Research / Header Image Credit: CardinalStone Research
Executive Summary
The twin evils of COVID-19 and oil price shock are likely to cause a
deterioration in the domestic economy in 2020, with a potential spillover into
the first few quarters of 2021. The viral spread came at a time when budgetary
space to absorb shocks is limited by weak oil prices. COVID-19 threatens to
overwhelm domestic healthcare infrastructure, upend livelihoods, cripple social
conditions, and distort business activities. So far, Nigeria's reaction has
mostly been in sync with IMF's suggested response to the viral spread and its
fallout even though the scale of the measures adopted appears insufficient to
prevent significant distortions to domestic macro variables in the current
year.
Monetary policy bias could remain largely dovish, with administrative
measures set to leave system liquidity at elevated levels and yields mostly
lower in Q3'20. We expect yields to slowly reverse trajectory in Q4'20 due to a
halt in OMO maturities that cannot be rolled-over as a fallout of CBN's OMO
restrictions. Thus, investors are likely to stay short in the fixed income
space. The government could also use some domestic borrowings to augment any
budgetary shortfall that may arise after concessionary funding options have
been exhausted.
In the equities market, we expect investors to take advantage of
bargain hunting opportunities in fundamentally strong names and hold for the
long term. Investors could gravitate towards stocks with track records of high
profitability, low financial leverage, and less margin volatility amidst the
current macro vulnerabilities.
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