February 5, 2021/InvestmentOne Report

Please click to view the January 2021 Macro & Markets Update

·        The outlook for global economy remains gloomy as nations battle second wave of COVID-19. 

·        Going forward, we expect Brent crude to be supported by the recent OPEC and its allies’ commitment to maintain output cuts in 2021. 

·        We expect the overall growth in the economy to be driven by resilience in the non-oil sector; while we expect uneven recovery across non-oil sectors. Telecommunication, Agriculture and financial services sector are expected to be major drivers of growth in 2021. 

·        Overall, we expect to see the economy to shrink in Q1 2021 on the back of high base effect of Q1 2020 performance. 

·        The recently released inflation report for the month of December  2020 by the National Bureau of Statistics (NBS) showed that headline rate rose to 15.75% y/y from 14.89% y/y in the previous month; this represents the highest inflation level since November 2017. 

·        The food sub-index rose by 19.56% y/y, 126bps higher than November 2020 figure of 18.30% y/y.

·        Looking ahead, we reiterate that the outlook for the headline inflation rate remains biased to the upside going into 2021, despite the suspension of the recent increase in electricity tariffs. 

·        We largely expect the implementation of the record N13.59trillion budget to be an uphill task, even as the local economy clamours for fiscal support.   

·        Going into 2021 and just glancing at the FG’s borrowing plans, we do not see respite on the debt build-up especially with our outlook for revenue generation.  

·        During the month of January 2021, FAAC disbursement came out c. N18billion stronger, printing at N619billion. 

·        In its first meeting in 2021, the MPC voted to maintain Monetary Policy Rate (MPR) at 11.50%, in line with our expectation. 

·        Although the FG is likely to continue raising debt in the local space to fund the FG’s 2021 budget in coming months, we do not envisage sustained significant upticks in the level of yields (to double digits) given the level of liquidity in the system, inadequate investment outlets in that space and the FG’s hunt for low interest rate debts. 

·        Following the receipt of the World Bank US$1.5billion loan, FX reserves inched up by 2.51% to 36.30billion at the end of January 2021. 

·        While the CBN is likely to continue rationing its dollar resources with the aim of satisfying and favouring expenses that will contribute to economic growth, we expect the CBNs new remittances directive to yield positive reactions in the naira at the parallel market. 

·        The Nigerian equities market opened the year in positive territory, as the NSE-ASI advanced by 5.30% m/m to close at 42,412.66pts, a new 52 week high. 

·        Further pressure on money and bond market yields is likely to spur domestic investors’ participation in the local bourse. In the spirit of earnings season, with annualised returns (dividend yields) on some quality names looking more attractive for investors who are willing to invest with a medium to long-term horizon.