EUR 3.42 For Business Accounts Only

Q4 2017 Strategy Report - Pathway in turning tide

• Developments in the last few months encapsulated some of the overarching themes we’ve previously laid out. Much of the third quarter seemed to have put to rest keen worries on near-term stability of the naira as well as a five-quarter old economic recession. For now, we awaken to a CBN volte-face and a louder expectation of accommodative monetary policy. Similarly, our conservative outlook on 2017 growth has largely been justified by a contraction in the bellwether Services sector that tapered optimism over latest GDP reading.
• Momentum for investments appeared to have switched gear, with Nigeria’s equity market notably turning the corners in May following the introduction of the IEW a month earlier. Foreign portfolio investors finally received their bidding in a market wherein CBN involvement in activities is south of 10%. In a word, improvement in FX liquidity restored foreign confidence in a market that was once be-devilled by intense dollar demand management and an overall obsession for “currency protectionism”. Indeed, currency was central to financial markets and economic discuss over the past months, but it did not fully explain the bull run in equities or the fading away of high treasury yields.
• Against this backdrop, this report directs attention to a critical assessment of major market drivers in the review period with a view to ascertaining the sustainability of current gains as well as highlighting appropriate investment plays in Nigeria’s ever dynamic terrain. What, for instance, is the fate of equity markets going into 2018? Will it continue to ride FX-induced momentum? On fixed income, everyone unanimously made the call for yield moderation in the coming year, but that’s the obvious part. Thus, rather than end at obvious assertions, we ask the all-important question: “now that attractive yields are exiting the economic stage, what is the next step? As we approach year-end and subsequently first half of 2018, we are looking at the continuation of some trends and starting to see others a little differently.