Outlook & Investment Strategies for 2020

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Executive Summary

International Monetary Fund projects global output to grow by 3.4% in 2020, higher than 3.0% forecast for 2019. The Bretton Woods institution predicated its global growth forecast on increased output in emerging and developing economies, especially in Asia and Europe, which are currently witnessing strong domestic demand and rising wages amid monetary and fiscal stimuli. This is in spite of the ongoing global trade tensions, especially between the U.S. and China as well as economic and trade uncertainties over the Brexit saga – indeed, the IMF projects slower growth rates for the U.S. and Chinese economies of 2.1%
and 5.8% respectively in 2020 (from 2.4% and 6.1% projected for 2019).

The IMF projects Nigeria’s economy to grow by 2.5% in 2020 (higher than 2.3% forecast for 2019). We expect the Nigerian economy to benefit from solid crude oil revenues which should support economic growth in 2020 as well as provide a boost to its external buffers. Sustained expansionary fiscal policies should, especially from the angle of infrastructural development around the country should also provide at least minimal support to growth giving lag effects due to their long gestation period.

We expect the general price level of goods and services to be upbeat in 2020, mainly as a result of structural factors and less of consumer demand. Continued border closure by the fiscal authority, premised on the need to support local industries, is expected to exacerbate cost-push inflation – although there are expectations that the protectionist measure should stimulate domestic output and improve the balance of payments.

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We believe the monetary authority will remain aligned with the fiscal authority’s economic growth objective by seeking to create and sustain conditions that will boost liquidity in the financial system in order to drive down interest rates to a single digit. Thus, we expect interest rates to remain suppressed in 2020. In a complementary move, we suspect the Monetary Policy Rate may be adjusted downwards from 13.50% to 13% in order to further signal its expansionary monetary policy regime.

We expect 2020 to be a favourable year for equities against the backdrop of low-interest-rate environment. This is because companies would be able to access funds at a cheaper cost, thus reducing their interest expense and positively impacting their bottom lines. Also, investors are expected to make a switch from fixed income securities yielding negative real returns to equities presenting positive real returns both in terms of dividend yields as well as possible capital appreciation especially in the first quarter of 2020.

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Download the Outlook & Investment Strategies for 2020 here

Cowry Asset Management Limited (COWRY)

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