2020: Afrinvest predicts bullish performance in Equities market

.Says devaluation of Naira likely in H2:2020

Afrinvest West Africa Limited has predicted a bullish performance in Nigeria’s Equities market in 2020.

The independent investment banking firm made this known at the launch of Afrinvest Economic and Financial Markets 2020 Outlook, with the theme, ‘Nigeria in the New Decade: Nothing Ventured, Nothing Gained’, in Lagos recently.

Managing Director, Afrinvest Securities Limited, Ayodeji Ebo, said the prediction is against the backdrop of slow global economic growth and dovish monetary policy stance across developed economies.

The bullish performance of the nation’s Equities market in 2020, he said, “will be driven by unorthodox domestic monetary policy (characterised by a low yield environment), improving clarity on domestic fiscal policy and an improvement in corporate earnings performance and corporate activities, including new listings and recapitalisation exercise”.

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On the outlook for the Fixed Income Market, he said the firm believes that the movement of short- term yields in the market will be driven by monetary policy decisions by the Central Bank of Nigeria while the long-term yields will be determined by activities of long term investors.

“The segregation in the money market, which saw the yields on short-term instruments decline sharply, is likely to continue until the end of Q2: 2020. On the basis of this, we predict a further 100 bps drop in average short-term yields for the first half of 2020. Should the CBN return to status quo in Q3 as predicted, we expect a 250bps rise in average short-term yields for the residual part of the year. Overall, we expect a 150bps rise in average short-term yields for 2020,” the company said.

Afrinvest West Africa Limited also predicted an imminent devaluation of the nation’s currency in in the second half of the year 2020 unless there is a drastic increase in oil prices.

“In 2020, we believe the dark clouds are gathering, including further currency pressures and an imminent devaluation. Aside from weak oil prices and capital flows, which would be the fundamental drivers of currency movements, there has been an aggressive liquidity build-up in the economy. The latter is due to an expansion in credit and large amounts of OMO maturities without high-yielding investment outlets.

“In our view, this could lead to increased demand for imports, which would depress the current account balance. Similarly, there could be higher FX demand as the case for diversifying investments into dollar assets is compelling given negative real returns domestically.

We expect currency stability in H1:2020 and a 10.0 per cent devaluation to N396.00/US$1.00 in H1:2020 if capital inflows remain weak and oil price falls below US$60.0/bbl,” Afrinvest stated.

Concluding the presentation, Group Managing Director, Afrinvest (West Africa) Limited, Ike Chioke identified the decentralisation of policing and security apparatus as critical steps that the political leadership need take to engender rapid economic development of the country.

“A situation where the responsibility of policing and securing the country is saddled on one man in Abuja does not make for effectiveness. Our policing must be community-driven for us to have better results. The investment follows a secure and peaceful environment, so we need to urgently decentralise our policing and security apparatus to engender a business-friendly environment, which in turn will boost investments,” he said.