March 8, 2021/InvestmentOne Report

Please click to view the February 2021 Macro & Markets Update

·        Oil prices continue to improve as Joe Biden’s stimulus package of US$1.9trillion and low crude production from US due to unfavourable weather supported Brent oil price to US$66.13per barrel (+17% in February).  

·        Going forward, we expect oil prices to be supported by the OPEC and its allies’ commitment to maintain output cut in 2021.  

·        Contrary to our expectation, the country recorded an expansion in output as GDP rose by 0.11% in Q4 2020 compared to a decline of 3.62%y/y recorded in Q3 2020 and a growth of 2.55% in Q4 2019.  

·        Overall, we expect the nation’s GDP to grow in 2020 by about 1.5% in line IMF but above the World Bank’s projection of 1.1% for Nigeria. 

·        Recently, the National Bureau of Statistics released the inflation figure for the month of January 2021 which further showed the pressure on consumer prices as the headline inflation hit a near 4 -year high of 16.47% from 15.75% in December 2020.  

·        The food sub index remained the main driver of the uptick in headline inflation.  

·        Overall, we expect inflation to remain high for a while before slowing down due to high base effect. On the average, we see   inflation around 15% (Our base case scenario) in 2021 higher than the average of 13.20% in 2020.  

·        In the outgone month, we saw the country deal with the stark realities of higher oil prices, with Brent crude marching above US$65 per barrel amidst strong compliance to OPEC+ supply cuts, vaccine optimism and lockdown lifting measures in the works. 

·        We also saw FAAC disbursement for the month print at N640.31billion, N21billion higher than the preceding month.  

·        Lastly, we saw the approval of the Medium-Term Debt Management Strategy for 2020-2023. 

·        At the NTB primary auction, we noticed continued increase in stop rates even as overall subscription level declined to average of 1.31x (1.37x in January).  

·        At the CBNs OMO auction, average subscription rate for the month registered at 1.87x (3.71x in January 2020). 

·        In terms of FPI inflows, we believe the increase in OMO stop rates and yields may bode positively in attracting FPI interest. 

·        In the local scene, the CBN reportedly adjusted the naira at the official market to N410 against the dollar.  

·        In addition, we highlight that FPI inflows into the window fell during the month under review to US$17.90million, from US$116.10million, accounting for 3.16% of total inflow into that space.

·        Furthermore, with the sustained uptick in oil price, combined with relatively upbeat global economy outlook, FX receipts from oil sales may serve as an additional defence for the currency.

·        The Nigerian equities market came crashing down in the month of February, as the NSE-ASI fell by 6.16% m/m to close at 39,799.89pts, from a  52 week high of 42,412.66 in January 2021. 

·        Although the investment case for equities remains given the relatively low interest rate environment,  high liquidity levels, limited investment outlets and heightened inflation, we are of the opinion that incentive for investors to book profits and watch the developments in the fixed income space has escalated.

·        With  that said, we continue to look at interest rate directions as the major risk factor for the performance of equities as a significant rise may trigger outflows.

·        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.