‘Pockets of hidden opportunities remain amid challenge’
THE nation’s economic outlook for 2015 may have been shrouded with uncertainty, as the combination of falling revenue profile, government’s low investment projection and the outcome of the elections raise new fears.
Besides, speculations over sustained tight monetary stance, further devaluation of the naira in the event of crude oil falling below $40 and possible increased borrowings, among others, have heightened the concerns.
But Afrinvest Securities Limited, in its 2014 economic review and 2015 outlook, said it was optimistic that there are pockets of hidden opportunities waiting to be discovered in the prevailing headwinds.
The securities company, in the report titled: “Staying Afloat in Stormy Waters,” unveiled at the weekend, noted that the global and domestic macroeconomic and financial market space suggest that 2015 will be challenging for the Nigeria’s economy and financial markets.
Speaking on the positive developments in 2015, the report pointed out that the global economy is expected to remain calm and supportive of growth as the European Central Bank begins its monthly 60 billion euros quantitative easing in March 2015.
The programme will stimulate funds inflow into the Emerging Market economies and frontier markets across regions, as global oil prices are as well projected to find a new level around $50 per barrel in the middle of the year to stabilize the global energy market.
In the domestic front, it observed that the Transformation Agenda of President Goodluck Jonathan has yielded some results in areas of agriculture, power and electoral reforms, with study showing that the populace is demanding more.
In 2014, insecurity in Northern Nigeria persisted unabated with government’s efforts achieving very little in curbing the insurgency.
Consequently, the upcoming elections set to hold during February 2015, is already generating a degree of apprehension both to local and foreign investors.
“We believe Nigeria’s economic growth engine will decelerate slightly in 2015 to five per cent Gross Domestic Product growth, while inflation inches higher up to an average of 9.5 per cent on the back of higher exchange rates.
“We also expect increased domestic government borrowings in 2015 of approximately N2 trillion, against the backdrop of a significant drop in revenue, as well as anticipated reduction in capital expenditure,” the report noted.
According to it, monetary policy space will maintain its tight and contractionary stance, but remain fairly stable as the CBN is expected to study the digestive mechanism of recent policy changes.
It also projected Cash Reserve Requirement and the Monetary Policy Rate to remain at current levels, while the Net Open Position would become a pivotal monetary policy tool that may be tweaked from time to time to achieve desired results at the foreign exchange segment.
“Our foreign exchange rate outlook is tied to oil price scenarios in 2015. A further significant price slide below $40pb may necessitate a further currency devaluation by the CBN, otherwise, demand-supply dynamics will keep the naira at approximately N200/$1 at the interbank.
“Our outlook for the Nigerian equity market is modest for 2015. Having lost 16.1 per cent in 2014, recovery is in sight given our base case return expectation of 5.3 per cent, as companies’ fundamentals remain sound and attractive. The banking and industrial sectors will still lead the crusade of gains due to high losses suffered in 2014.
Yields on fixed income instruments are expected to stay high (14.5 per cent-15.5 per cent) in 2015, as investors are likely to demand for higher premiums to compensate for credit, foreign exchange, interest rate and country risks.
“We preach diverse investment strategies in playing the equities and fixed income markets in 2015 given the global, political and economic uncertainties surrounding investment fundamentals for the year. We support optimal strategies for equities and fixed income amidst the market turbulence while setting an eye on alpha,” the report added.
