Reviews & Outlooks | |
Reviews & Outlooks | |
1792 VIEWS | |
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Thursday, January 24,
2019 10:20 AM / FBNQuest Capital
One hurdle in Q1,
others to follow
The end to the distraction in sight (hopefully)
The investor interest in the elections is that they should be completed
on schedule and with a clear mandate. The worst outcome would be a very close
result contested in the courts and on the streets, which pushes back the window
of opportunity for reform. (We hesitate to use the word ‘change’.) Incumbency
still has its advantages yet we see a tighter result than in 2015. We trust
that the next administration will address fuel
subsidies.
A small pick-up in growth ahead
The core of the incumbent’s case is the expansionary fiscal policy,
notably on the capital side. This stimulus underpins our forecast of 2.9%
growth this year, along with a rise in crude oil production and some private
investment. The rebuilding of household budgets is at an early stage, and would
be helped by a rise in the minimum wage, and the settlement of salary and other
arrears.
Solid legs to the fx regime
There has been campaign talk of radical changes to fx policy. Very few
central banks have experience of genuinely floating regimes and all of them,
whoever the governor, are bureaucratic creatures of habit. The CBN’s mindset is
to manage rates. We would not be surprised if the current arrangements are
broadly in place at year-end.
No change in the policy rate, inflation stable
We see a continuation of the MPC’s unchanged stance throughout the year.
It declined to move when there has been a decent case both to hike and to ease.
We expect inflation to settle within the range of 11% to 12% y/y.
Widening of yields, potential 15%+ return for equities in 2019
There is room for FGN bond yields to widen by up to 100bps over the next
12 months, given the CBN’s preference for mopping up naira liquidity. We expect
equities to recover after last year’s sell-off, by 17.7% to 37,000 by year-end.
The ytd loss of -1.8% implies upside potential of around 20% from current
levels.
Central economic indicators |
||||
|
2016 |
2017 |
2018E |
2019E |
Real growth (in per cent) |
-1.6 |
0.8 |
2.0 |
2.9 |
CPI (in per cent; y/y Dec) |
18.6 |
15.4 |
11.4 |
11.9 |
Monetary policy rate (%; year-end) |
14.0 |
14.0 |
14.0 |
14.0 |
Current account/GDP (in per cent) |
0.7 |
2.8 |
1.4 |
1.7 |
Bonny Light (end-period spot; US$/b) |
55 |
67 |
52 |
65 |
Bonny Light (average spot; US$/b) |
44 |
54 |
69 |
63 |
Official fx reserves (in US$ bn) |
26 |
39 |
43 |
40 |
N/US$ (end-period) |
305 |
306 |
307 |
310 |
N/US$ (average) |
254 |
306 |
306 |
308 |
Sources: CBN, NBS, Bloomberg, FBNQuest Capital
Research |
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