Nigeria Strategy Report H1 2018 Excerpts - Constructive flows to EMs but headwind prospers
- In contrast to a sharp decline in capital flows to emerging markets between 2015 and 2016, portfolio flows proved resilient in 2017. The Institute of International Finance (IIF), estimated portfolio inflows to EMs over 2017 at $243 billion (+40%% YoY)— the highest level since 2014— underpinned by broader global economic recovery, higher risk appetite and favourable global financial conditions. On the pull side, higher commodity prices and improving economic fundamentals which lessened default risk as well as a more stable currency market were key drivers for the strong portfolio flows. Importantly, despite rate hikes by global central banks, flows to EMs debt was boosted by significant interest differentials with DMs which incentivized carry trade opportunities.
- Over Q3 2017, net portfolio flows to EM Asia were largely positive underpinned by strong flows in China and India. Latin America also witnessed improved portfolio inflows on the back of investors’ positive reassessment of Brazil’s growth potential. In EM Europe, portfolio investments into Turkey turned negative, printing at -$25.3billion against the backdrop of weaker macroeconomic fundamentals even as inflation touched an all-time high in November (12.98% YoY) alongside heightened political risk ahead of the 2019 elections. Over in MENA, portfolio flows into Egypt remained resilient (Q3 17: $7.5 billion) due to improved investors sentiment towards local currency denominated assets in the wake of its currency flotation. Lastly, capital flows to Africa remained resilient in H2 2017 largely underpinned by positive flows into Nigeria and South Africa.
- Going into 2018, we think EMs are more resilient. In our view, a stable and growing global economy, higher commodity prices and improving fundamentals in key financial markets will support flows to EMs. More so, EMs growth is expected to further outpace the growth picture for the developed market. Irrespective, while we remain broadly constructive on EM fundamentals and valuation, flows to EMs will certainly face headwinds.
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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