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2019 MACROECONOMIC AND INVESTMENT OUTLOOK

Dear Client/Reader,

Dear Client/Reader,

MBC Securities Limited presents its 2019 macroeconomic and investment outlook titled; “OPPORTUNITIES IN THE MIDST OF TURBULENCE”. The report reviews economic and market outcomes in 2018, presents the economic and investment forecasts for 2019 and highlights the investment opportunities in the year 2019 in spite of the expected “turbulence” the year presents. Below is the EXECUTIVE SUMMARY which summarizes the highlights of the report.

Executive Summary

  • Global economic growth in 2018 shed some of the strong momentum recorded in the second half of 2017 especially in the United Kingdom, Europe and Asia on the back of US-China trade war, slower export growth, tighter financial conditions and Brexit uncertainties amid various domestic issues. In the oil market, oil price recorded its first annual decline in 3 years as it went down by 21% in 2018 resulting from concerns about the impact of Sino-US trade dispute on global economic growth and oversupply challenges.
  • Global Equities markets were affected by a variety of unpalatable events in 2018; most especially the trade war among major economies supported by the uncertainties and controversies surrounding Brexit amid other localized challenges. Frontier markets were the largest losers going down by 19% while the emerging markets followed with a negative return of 17% year-on-year.
  • Nigeria’s economic growth failed to consolidate on the tepid recovery of 2017 as the nation recorded GDP growth of less than 2% in the first three quarters of 2018 driven majorly by the non-oil sector. The major drag for this lackluster performance was the lack of clarity about policy direction by the current administration which weighed heavily on economic performance. The Nigerian stock market also put up a disappointing performance in 2018 as it shed 17.83% y/y, attributed to happenings in the global economy amid political uncertainty.
  • The International Monetary Fund (IMF) maintained its 2019 global growth forecast to remain at 3.7% in 2019, same level achieved in 2017 on the back of rise in the downside risks to growth caused by continuing trade tensions and low potentials for growth in the advanced economies. According to World Bank, Global growth is expected to edge down over the next two years growing by 2.9% in 2019 as global growth prospects dissipates, trade and investment moderate, and financial conditions tighten.
  • Some of the activities that will shape the year in the global space are the US-China trade war, Brexit outcome, tighter monetary systems and swing producer status between OPEC and US while, in the domestic space, political activities pre and post-elections will dictate the direction of the year.
  • 2019 is seen to be a year of two halves as the first half is expected to be slow on the back of activities towards the 2019 general elections which might coincide with delay in the passage of 2019 budget while the second half would be stronger than the first upon resumption of new/existing government to office. MBC projects 2019 GDP growth at 2.2%, Average oil price at $59/barrel, average Inflation at 12.7% and exchange rate to be within N358 – N380/ $1.
  • Based on technical, fundamental and scenario analysis, we envisage a more rewarding investment in the fixed income space in 2019 while also expecting a rebound in the stock market in the second half of the year. Our model portfolio comprising of FGN Bonds, Treasury Bills, Quoted stocks and NASD gives a return of 24.95% which is above our average inflation rate of 12.7% in 2019 and the risk free rate of 14.5%.

Please find attached the full copy of the Report.

We hope you find it useful.

Regards.

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