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In this report, we examined the events of the second half of 2023, focusing on the global economy, domestic economy and domestic capital market. Afterwards, we gave an outlook for the first half of 2024 as well as investment strategies that will guide investors in making the right decisions.


2023FY unfolded as quite an eventful economic odyssey, with the United States showcasing resilience amid shifting monetary policies, marked by the Federal Reserve’s cautious approach and a subsequent decline in inflation. Looking forward, the International Monetary Fund projects a slowdown in US growth to 1.40% in 2024. The 2024 US elections raise concerns due to high debt levels and possible fiscal expansion. A growing debt and a dysfunctional congress may affect US credit ratings, adding stress to global financial markets in H1:2024.

We anticipate the Fed will likely implement rate cuts in H1:2024 to boost employment amidst weakening inflationary pressures. Globally, unique challenges shaped the economic landscape in 2023; the United Kingdom grapples with stagflation, the Euro Area faces recession risks, Japan is pressured to abandon its ultra-loose monetary policy, China addresses a property market slump, and Sub-Saharan Africa confronts a brewing debt crisis. The odyssey continues with anticipated geopolitical tensions in H1:2024, fanning flames of uncertainty on the horizon.

Despite these challenges, strategic opportunities abound in carry trade, locking in bond yields, and market timing, underscoring the importance of astute portfolio management amid evolving economic dynamics and geopolitical uncertainties. As central banks navigate inflation, growth, and political challenges, prudent positioning is crucial to capitalize on emerging market economies with higher interest rates and mitigate potential risks in the dynamic environment anticipated for 2024.

 In the domestic space, Nigeria demonstrated economic resilience with a growth of 2.54% in the third quarter of 2023. The non-oil sector drove expansion, particularly in services, agriculture, manufacturing, and trade. The oil sector saw a slower contraction of 0.85% in Q3:2023, with prospects for recovery in 2024. Looking ahead, services sector, led by financial services and ICT, is poised for growth, but challenges like elevated borrowing costs and inflation persist.

Overall, the 2024FY outlook projects economic growth rates ranging from 2.09% to 3.24%, with a base case projection of 2.71%.

On consumer prices, Nigeria has grappled with escalating inflation, driven by pivotal policy reforms like the removal of the Premium Motor Spirit (PMS) subsidy and Foreign Exchange (FX) market liberalization, compounded by structural challenges such as insecurity, logistical hurdles, and storage limitations. The inflation rate surged from 21.82% in January 2023 to a peak of 28.20% Year- on-Year by November 2023, marking the highest since the 2009 Consumer Price Index rebasing.

Looking ahead to 2024, our inflation forecasts consider fuel prices, Naira depreciation, electricity tariffs, FX supply, and food supply. In the base case, an average inflation rate of 24.39% is projected, while the bull and bear cases anticipate 23.51% and 25.76%, respectively, reflecting diverse scenarios in a complex economic landscape.

In a surprising turn of events, the Central Bank of Nigeria (CBN) witnessed a leadership change in H2:2023 and we saw a shift from unorthodox policies. The CBN revived OMO auctions to absorb liquidity, leading to a decline in system liquidity. In H1:2024, the CBN is expected to maintain a hawkish stance, using various monetary tools to address inflationary pressures, potentially leading to a 50-100 basis points increase in interest rates.

In 2023, despite macroeconomic hurdles, the Nigerian equities market saw an impressive 45.90% gain, surpassing major global indices like the Nikkei 225 (+28.24% YtD), Euro STOXX 50 (+19.19% YtD), and DOW Jones (+13.70% YtD). This performance also outpaced Sub- Saharan indices such as NSEASI (-27.74% YtD), GGSECI (+28.08% YtD), and JALSH (+5.26% YtD). Local factors, such as the removal of the PMS subsidy and FX liberalization, fueled positive sentiment in the market. Domestic investors played a pivotal role, compensating for reduced foreign participation, representing 88.78% in November 2023. Key sectoral leaders included Oil and Gas, Banking, Consumer Goods, Insurance, and Industrial Goods sector.

The overall outlook for 2024 is positive, but potential risks like FX shortages and inflation should be considered. Overall, investors are advised to focus on high dividend paying stocks with robust fundamentals in sectors such as Consumer Goods, Industrial Goods, Oil and Gas, and Banking. 

Elsewhere, Fixed Income yields are projected to move upward in H1:2024 despite an expected liquidity surfeit, with short-term rates rising faster than longer-term ones. Investors are recommended to hold short positions at the short end of the curve and may consider high returns from money market instruments.

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