Worried by the lingering macroeconomic quagmire in the nation’s economy characterized by a matrix of complexities with minimal micro level impact, researchers at the Bancorp Securities Limited have projected that the prevailing whirlwinds and current situation in the global commodities market could wane investor confidence in the Nigeria capital market this week.
The experts, in the firm’s ‘Weekly Stock Recommendation for Sep 02 to Sep 06, 2024’ circulated to our correspondent on Monday, primarily hinged their forecast about the equities market on the FX Market and Naira dynamics, Monetary Policy and Banking Sector, the GDP and Sectoral Performance of the economy as well as Commodities and Global Market Influence
While noting that the CBN’s reintroduction of the Retail Dutch Auction system aims to better manage FX demand, with forward contracts showing improved future expectations, the analysts pointed out that the local currency (Naira) continued to face depreciation pressures amid weak FX reserves and limited CBN interventions, and increasing currency volatility risks.
They observed though the CBN’s measures, including raising the MPR and selling OMO bills, remained crucial for curbing inflation and maintaining economic stability, the experts maintained that Nigeria’s rising money supply and reduced credit indicate persistent inflation and challenges in monetary control, were also impacting economic activity.
On the GDP and Sectoral Performance, the researchers recalled that Nigeria’s GDP grew by 3.19% in Q2:2024, driven by a 10.2% expansion in the oil sector and 3.5% growth in the industrial sector, adding that non-oil sector growth slowed to 2.8%, with agriculture and services lagging, while low crude production poses risks to further GDP growth.
While recalling that the global oil prices recorded a temporary rebound last week, driven by U.S. economic data and Libyan supply disruptions, the experts predicted that the development could support Nigeria’s oil revenues and bolster FX inflows in the short term.
However, they cautioned that the global market remained volatile, with Brent oil prices stabilizing and gold prices declining, indicating uncertainties in global demand as Nigeria’s reliance on oil revenues remains a vulnerability, especially with current crude production levels under-performing.
On the domestic and global economic developments and implications for the equities market outlook this week, the experts forecasted: “The persistent depreciation of the naira and weakened FX reserves are likely to weigh on investor confidence in the Nigerian equities market, as currency volatility increases the risk of holding Naira denominated assets.
“Despite the CBN’s efforts to curb inflation, rising money supply and liquidity constraints could dampen market liquidity and trading volumes. The volatility in global commodities, particularly oil, may further exacerbate uncertainty in the equities market, particularly for oil dependent sectors”, the analysts added.
