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Nigeria Strategy Report H1:2023 - NAVIGATING MURKY TERRAINS

2021FY had given a semblance of “Uhuru” from the numerous issues that headlined the global economy in 2020FY, with the primary cause being the supply chain disruption that followed the global pandemic. We noted the overarching recovery in aggregate demand worldwide and how 2022FY would be a launchpad to more improvements, given improved vaccination, amid the lingering spread of the virus. There was also the expectation that emerging rises in prices at the time were majorly transitory and would pave the way in no time. Nonetheless, we had warned of a capital market burst, considering the boom at the time was majorly financial-system money induced – given that quantitative easing became widespread beforehand.

 

Conversely, what appeared to have encouraged significant optimism took a U-turn as the world woke up to the invasion of Ukraine by Russian forces on the 23rd of February 2022. Forward, the supply-chain implication of the war flowed into every economy of the world, as commodities prices recorded surges that continued to impact consumer prices globally significantly. We note that this development hastened monetary policy bodies into action as several hawkish stances of high magnitude surfaced across advanced, emerging and frontier markets. As of 2022FY, however, we have started to see a slowdown in the pace of price rises, and coupled with indications that global growth is slowing, we believe that hawkish monetary decisions will begin to slow. We opine that by H2:2023, the conversation might have even changed, as we foresee the likelihood of dovish stances as the recession kicks. In the meantime, however, we hold that the global macro strategy should now be to long Emerging Markets, considering the prevailing low valuations in those markets.

 

For the domestic economy, the growth path in 2023FY will reverse the 2022FY reality. We believe that the expected elevations will primarily reflect the recovery of the Oil segment of the economy as the non-Oil sector continues to slow down on the back of slowing output. While the former might reflect the firmer action that the government is taking on curbing oil production losses, the latter, on the other hand, is expected to reflect the elevated consumer prices amid the slowdown in private consumption per capita in the economy.

 

In the capital market, we foresee more debt issuances in 2023FY, even though that should set the way for high yields from H1:2023. We believe that the high maturities in the period, combined with the increasing impetus to manage the cost of debt, might encourage more use of the ways and means. Indirectly, this would pale allotments at auctions and discourage elevated marginal and stop rates. The suggested uncertainties, however, bode well for low-valued tickers on the NGX, as Investors optimise the global macro strategy perspective by taking positions in the domestic bourse. Indeed, we believe the election risk is priced into the market.