Reviews & Outlooks | |
Reviews & Outlooks | |
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Monday, January 18, 2021 / 3:13 PM / By CardinalStone Research / Header Image Credit: CardinalStone
Drawing inspiration from the Irish poem "Second
Coming", written in the aftermath of the First World War in 1919 amid a
rampaging flu pandemic, we argue that the fate of several countries hangs in
the balance in the face of the second wave of the deadly COVID-19 virus. The
re-opening of economies combined with slack preventive measures and the
evolution of mutated strains of the virus opened the doors to the second wave
of widespread infections. The globe's economic fate now rests on the success or
otherwise of distributing a few vaccines, with broad expectation skewed in
favour of a V-shaped recovery.
In Nigeria, the V-shaped recovery is likely to be led
by the non-oil sector on the impact of 2020 low base effect, a ramp-up of
government spending, increase in credit creation and sustained normalisation of
economic activities. The current pace of yield increases is likely to moderate
in Q1'21 on the impact of excessive liquidity but pick pace in Q2'21. Our
expectation of an eventual pick-up in yields reflects lower OMO maturities,
lesser dovish inclinations on macro recovery, and a wider budget deficit. Thus,
investors are likely to stay short in the fixed income space. The government
could also frontload greater than expected domestic borrowing ahead of a
potential pick-up in yields, especially if there are signs that external
funding conditions could deteriorate.
In the equities market, we expect investors to take
advantage of bargain hunting opportunities in cheap, fundamentally strong names
with a track record of shareholder wealth creation or veritable evidence of
structural breaks from previous constraints. Investors are likely to follow
volatilities in these names and try to take advantage of mispricing when they
occur.
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