With some macroeconomic indices indicating prospects of bright outlook for Nigeria’s economy in the near term, investment analysts at Bancorp Securities Limited, a leading investment research and stockbroking firm in the country, have projected that trading in the Nigerian Exchange this week be uptick, with positive investment sentiments characterizing the trading sessions.
The experts, who made this forecast in the firm’s ‘Weekly Stock Recommendation May 06 to May 10, 2024’, however, stated that the expectation of higher policy rates is dovish on the price outlook on the broad market, with core impact areas on banking and insurance stocks.
They noted that Fitch Ratings had upgraded Nigeria’s Long-Term Foreign-Currency Issuer Default Rating from Stable to Positive, maintaining it at ‘B-‘, reflecting Nigeria’s commitment to restoring macroeconomic stability and enhancing policy coherence through various reforms.
According to the experts, the rating agency’s projections include the anticipated further increases in the CBN monetary policy rate in the latter half of 2024, building upon the significant 600 basis point hike since February 2024 with the accompanying tighter reserve requirements and enhanced monetary policy transmission.
Other key highlights of the Fitch Ratings are that Inflation is forecasted to average 26.3 percent in 2024 and 18.2 percent in 2025, surpassing the projected ‘B’ median of 4.5 percent and largely driven by factors such as exchange rate pass-through and escalating food prices; and expectations of a two-percentage-point rise in general government revenue/GDP from 2023 to 2025, reaching 9.6 percent.
The rating agency predicted this growth would be facilitated by improved mobilization of non-oil tax revenue, aiming to reduce the budget deficit to 4.1 percent by 2025 even as Nigeria’s GG revenue/GDP ratio remained comparatively low among Fitch-rated sovereigns, albeit mitigated by reduced reliance on CBN overdrafts.
On the implications of these projections for the economy, the analysts predicted: “From the foregoing, we expect the market to elicit positive investor sentiments, amidst comparatively lower prices on the bourse, however, the expectation of higher policy rates is dovish on the price outlook on the broad market, with core impact areas on banking and insurance stocks. The above is predicated upon subsisting directional news in the course of coming weeks.”
