Cardinal Stone Research H2 2019 Outlook: Fish or Cut Bait

Must Read

List of Guaranty Trust Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number that usually identifies both the bank and the branch where an account is...

Top 10 Most Expensive Universities In Nigeria

For many Nigerians, high-quality higher education is a luxury. There are many private universities who are known not only...

List of Access Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number which usually identifies both the bank and the branch where an account is...
Cardinal Stone Research H2 2019 Outlook: Fish or Cut BaitCardinal Stone Research H2 2019 Outlook: Fish or Cut Bait

Global Economy – Monetary authorities tilt to dovish orientation

As expected, the United States (US) remained at the heart of global economic discourse and could well prove to be the most influential force in determining global growth for 2019E. Only recently, the IMF slashed its global growth expectation by 10bps to 3.2% YoY partly due to concerns around the US-China trade tensions and its likely pass-through to other economies. Elsewhere, the dark cloud around Brexit and geopolitical tensions remained key considerations for the global growth outlook. Unsurprisingly, GDP releases so far this year, together with generally softening inflation, point to weaker-than-anticipated global activity. Investment and demand for consumer durables have been subdued across advanced and emerging market economies as firms and households continue to hold back on long-range spending. On this wise, the ubiquitous gravitation to monetary policy accommodation in developed and emerging market economies looks set to subsist until the end of the year. However, we note that the near-term risk to global growth remains firmly to the downside. According to the International Monetary Fund (IMF), these risks include: 1. intensification of trade and technological tensions 2. protracted increase in risk aversion that exposes the financial vulnerabilities and 3. rising disinflationary pressures that increase debt service difficulties, constrain monetary policy space to counter downturns, and make adverse shocks more persistent than normal.

Read:  Do Not Hide to Be Holy.

Nigeria – Should currency stability remain the priority?

In Nigeria, monetary policy direction remains largely unclear, with the monetary authorities leaving all its policy parameters unchanged in its late July meeting on the one hand, while implementing pro-growth administrative policies such as the increase in loan to deposit ratio requirement and reduction of the maximum amount banks can place on the Standing Deposit Facility (SDF) on the other. We believe the decision on the handling of the currency remains the most crucial going forward. The Central Bank of Nigeria (CBN), through its monetary policy committee, appears to have reaffirmed a willingness to continue its “currency protectionism”, mostly by drawing down on reserves to offset occasional shocks when necessary. Unfortunately, this strategy has failed to attract the needed patient capital into the country in the last five years mostly due to CBN’s stronghold on the currency. For context, volatile foreign portfolio flows into Open market operation (OMO) bills now constitute c.27.0% of Nigeria’s reserves, according to IMF. Clearly, interest rate spreads over key benchmarks will be the key motivator for this class of investors to roll over their investments in OMO bills.

Read:  Guaranty Trust Bank Plc: Superior profitability maintained
- Advertisement -
Read:  SMEDAN launches database portal to scale up MSMEs

Markets – Currency regime shakeup could be the key

Despite attractive valuations, a reversal of fortunes for equities is likely to depend on a decisive policy tweak to the currency regime. Since 2017, investors have priced in a forward premium over spot rates in the naira forward market (currently 1Y forward priced at ₦400.0/$), indicating expectations of imminent naira devaluation. Until this dark cloud is erased, we see little or no legroom for significant equity market correction in the near-term.

Please click here to read the full report.

- Advertisement -

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Latest News

Trinity 2019 Achieves Annual Results Turnaround with Core Operating Profit of HK$161 million and Profitability of HK$50 million

HONG KONG, CHINA - Media OutReach - 31 March 2020 - Trinity Limited ("Trinity" or the "Group"; stock code: 891), a leading...

Mr Bigg’s gives out over 400 Sanitizers, Nose Mask, Gloves at Ile-Epo Market

Mr Bigg’s, a leading quick-service restaurant operated by UAC Restaurants Limited, yesterday shared over four hundred alcohol-based sanitizers, surgical mask and hand gloves to...

Global Oil Production Is Set To Collapse Tuesday, March 31, 2020 - WTI opened slightly up but, at $20 per barrel, remains stuck at 18-year lows. There are few reasons...

NERC suspends planned electricity tariff hike amid virus outbreak

Following the current lockdown of economic activities and the many implications of the Corona Virus outbreak, the Nigerian Electricity Regulatory Commission (NERC) had on...
- Advertisement -
BrandsPur Weekly Cartoons
%d bloggers like this: