May 7, 2021/InvestmentOne Update

Please click to view the April 2021 Macro & Markets Update

·        In the outgone month, oil prices continued to recover as decent economic  data from US and China have been supporting sentiment in the oil market.

·        In the local space , weak government revenue has forced the Senate to ratify mix of US$1.5 billion and 995 million euros to help combat the health and socioeconomic impact of the Covid-19 pandemic across the state levels and enhance mechanized agriculture and agro process in the nation respectively.

·        We expect Nigerian economy to sustain positive growth in Q2 2021 as Non-oil sector rebounds due to the low base effect. 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.

·        According to the figures released by the National Bureau of Statistics the headline inflation hit a new 4-year high of 18.17%y/y from 17.33%y/y in February 2021.

·        As expected, the food sub index remained the main driver of the uptick in headline inflation.

·        Going forward, we believe food sub index may maintain its fast   uptrend on the back of the escalating insecurity in the country as farmers vs herdsmen crisis persists.

·        Overall, we expect inflation to remain high for a while before slowing down due to high base effect.

·        In the outgone month, we saw Brent crude trend upwards by about 6% to close the month at US$67.25 per barrel following improved oil demand outlook on the back of corresponding economic recovery across developed economies.

·        This came as double edged news for Nigeria as the country continues to battle with increasing subsidy   payments amidst weakened revenue profile.

·        The country also touted the possibility of a Eurobond issuance in 2021 to plug its N5.6trillion budget deficit.

·        At the NTB primary auction, we saw increase in stop rates on the longest tenure as overall subscription level settled at an average of 1.79x (2.27x in March).

·        Similarly, the bond market traded on a negative note during the course of the month as yields increased across most maturities.

·        We believe the increase in yields in the bond space experienced in the outgone month is a reflection of fixed income trader’s desire for sustained increase in the interest rate environment especially as headline inflation continues to trend higher, current 18.17% as at March 2021.

·        Going forward, it is likely that yields in the fixed income space continue trading at current levels with a bias towards further increase.

·        In the local scene, the CBN announced its plans to impose forex restrictions on the importation of sugar and wheat into the country, a move the bank claims to be aimed at encouraging local production of the commodities.

·        Elsewhere, data from FMDQ showed that the CBN accounted for about 21% of total inflow in the IEFX window, amounting to US$87.50million (from US$6.10billion last month).

·        At the parallel market, the naira was somewhat stable against the USD and GBP as it closed the month at N485/USD (N486/USD in March) and N675/GBP (N676/GBP in March) respectively.

·        The Nigerian Equities Market had a somewhat bullish run in the month of April, as the NSE-ASI printed a 2.02% m/m gain from 39,045.13pts at the end of March 2021 to 39,834.42pts at the end of April.

·        Furthermore, uptrends in inflation levels is still expected at least in the short-term therefore, investors will continue to search for investment options yielding higher returns ; we expect investors to pick up more quality names in the equities market to avoid the negative real return in the fixed income market.

·        With recovery in oil prices, improving Foreign Portfolio Investments and limited investment outlets, interest rate direction remains the major risk factor in the equities market as a significant rise in interest rates may prompt outflows from equities.