H1 2020 Review and Outlook plus Investment Strategy for H2 2020

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Executive Summary

The global economy is expected to witness negative growth – IMF predicts a decline in global output by 4.9% – but should gradually recover from recession amid early expansionary programs and policies by fiscal and monetary authorities which should stimulate consumer demand, spending and hiring by businesses and resumption of global trade.

Recovery in crude oil prices is expected to range between USD30 to USD40 per barrel amid supply cut and increasing demand, especially as major markets such as the United States and China, continue to resume economic activities.

H1 2020 Review and Outlook plus Investment Strategy for H2 2020 - Brand Spur

Given the negative impact of COVID-19 on the world economy, the Nigerian economy is expected to slide into recession in the second half of the year; in line with IMF’s forecast – it predicted a negative growth rate of 5.4% in 2020.

Specifically, depreciation of the Naira against the greenback, amid declining crude oil prices and Nigeria’s compliance with crude oil supply cut to the international oil market, in line with OPEC mandate, would negatively impact foreign sector of the economy.

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Events in the financial sector in H2 2020 will continue to be characterized by a central theme – Liquidity Creation. The pursuit by the apex bank to increase the Loan-to-Deposit ratio further to 70 per cent in 2020, up from 65 per cent in December 2019 is still on course, in our view.

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This is expected to boost liquidity in the financial system as a result of increased money creation in the second half of 2020. We witnessed liquidity boost in H1 2020, in line with our expectations which was clearly stated in our Outlook and Investment Strategies for FY 2020 report released in January 2020.

Given the anticipated sustained low-interest rates regime, we expect to see increasing government and corporate bonds issuances in H2 2020, even as cheaper interest rates provide opportunities for refinancing.

According to its revised borrowing plan for 2020, FG is expected to issue at least USD5.5 billion foreign and USD6.1 billion domestic borrowings as government reviewed its revenue downward amid lower crude oil prices and negative COVID-19 pandemic effects.

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We expect FG to issue more short-term securities as the short-term debt to total debt mix of 19% was below 25% target as at FY 2019.

We are optimistic that the equities market performance in H2 2020 will be better than what was recorded in H1 2020 as the solution to COVID-19 pandemic appears to be near (amid news of the commencement of the human trial of COVID-19 vaccine in the month of June 2020) and as the effects of economic policy interventions kick in.

Download the Outlook and Investment Strategies for H2 2020 report here

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H1 2020 Review and Outlook plus Investment Strategy for H2 2020 - Brand SpurH1 2020 Review and Outlook plus Investment Strategy for H2 2020 - Brand Spur

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