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Nigeria Strategy Report H2:2023 | A Bright Spot in Sight?

The year so far has been clogged with setbacks in the global economy. Over in the US, we witnessed an historic banking failure following the incessant rate hikes by the US Fed. Consequently, the fear of contagion slowed down the global equities market, especially the banking sector. However, in the later parts of H1:2023, we witnessed a bullish run in the market, buoyed by positive sentiments in the tech space. Elsewhere, the Euro area continued to grapple with the impact of the Russia-Ukraine conflict on its economy in H1:2023, with a looming recession in sight.

In the domestic economy, structural issues such as insecurity and infrastructural deficit continues to affect food inflation and consumer price levels in the period. Economic growth was further hampered by monetary policy tightening, electioneering activities, and the cash constraint in Q1:2023. Hence, GDP slowed to 2.31% in Q1:2023 (vs. 3.52% in Q4:2022).

For the rest of the year, we foresee a rebound in economic growth. Our outlook for the oil sector is positive, as we foresee the sector exiting the negative territory. We see the non-oil sector recover from the slow-down in economic activities, induced by the cash constraint earlier in the year.

In the Capital market, the equities market fared quite well, despite the banking crisis that permeated major economies in H1:2023. A prolonged January rally amid lower yields in the Fixed income market and more recently, the pro-market policy statement by the new administration, pushed the YtD  performance of the Nigerian equities market to 18.96% as of 30th June 2023. (23.00% as of 7th of July 2023). Furthermore, we expect an increase in foreign participation in the stock market as a result of the unification of the foreign exchange system which is expected to facilitate seamless repatriation of funds. We have already witnessed this trend in the Banking sector, which managed to achieve a positive performance (+54.59% YtD as of June 2023). This trend is expected to persist in H2:2023 given that foreign inflows are expected to join the fray.

Although in H2:2023, maturity profile lies below that of H1:2023, we believe the market will be awash with liquidity, given CBN’s CRR normalization and anticipated increase in FAAC allocations following the effect of the new exchange rate on foreign exchange proceeds. On the supply side, we expect the government to issue more debt in H2:2023, although we do not rule out the possibility of the use of the Ways and Means following the revised limit approved by the legislative houses to 15% of the prior year’s Government revenue. Overall, we expect fixed income yields to taper further in H2:2023.