On Tuesday February 13, Lagos-based investment firm Comercio Partners presented its macroeconomic outlook 2024 themed “Finding Rain in Drought”.
The report’s macro analysis offers a snapshot of Comercio Partners journey, covering critical areas such as the global outlook, inflationary quagmires, long-term interest rates, global equities, and commodities.
Ifeanyi Uba, investment research associate at Comercio Partners while taking investment and financial journalists through the report noted that it not only illuminated the path forward for savvy investors in 2024 but also provided a panoramic view of the macro analysis.
Comercio Partners’ core business is in trading fixed income securities and equities as well as providing financial advisory and assets management services to domestic and international investors in the Sub-Saharan African (SSA) capital market.
Amid bullish start to the year, which was fuelled by investor anticipation of 2023 full year (FY) results and dividend reinvestment, Comercio Partners however said that in the latter part of the year, market sentiments are likely to be shaped by a confluence of factors, including improved FX conditions, the stance of the MPC regarding inflation, yield movement in the fixed income market, and corporate disclosures to come.
The Comercio Partners 2024 macroeconomic and markets outlook report which reviewed global and local economic development in year 2023 also dived into the heart of Nigeria’s economic landscape with dedicated sections covering macroeconomic analysis, the Dangote story, Nigeria’s Forex market, monetary policy stance, and a forecast into 2024. This is in addition to exploring the Fintech Fallout, NGX performance, and much more.
While noting that the global political landscape in 2024 presents a myriad of challenges and opportunities that may shape the course of nations and their economies, Comercio Partners however anticipates that the ongoing global tightening cycle among developed market (DM) central banks will likely conclude by the close of 2024.
“Central banks are expected to exercise patience in maintaining policy rates, especially if confidence prevails regarding the convergence of inflation to target levels. However, certain central banks may face pressure to implement additional rate hikes should the pace of decline in inflation be deemed insufficient, especially in the U.S., Europe, and the UK.
“Simultaneously, China’s restrained growth poses challenges for emerging markets, with potential ripple effects across Asia and beyond,” Comercio Partners noted.
“In the intricate tapestry of global economics, we find ourselves at a critical juncture where the harmony between inflation and economic growth takes centre stage.
“As central banks across the globe grapple with a complex decision-making process, our tailored exploration provides an in-depth understanding for investors and businesses,” Uba noted.
“In a bid to tame the soaring inflationary pressures, the Central Bank of Nigeria (CBN), mirroring global counterparts, embarked on a journey of additional restrictive monetary policies.
“A formidable 225 basis points increase brought interest rates to a towering 18.75percent. However, the impact of these measures is yet to manifest fully, as Nigeria contends with rampant inflation spurred by escalating food import prices, exacerbated by a persistent dollar shortage.
“Simultaneously, the CBN, orchestrating its monthly bond auctions, has raised investment rates across various bonds, witnessing rate hikes of 826bps, 110bps, and 300 basis points (bps) for the 364DTM, FGN 5-year, and FGN 10-year bonds since January,” they further noted.
Still bullish on banking stocks…
After a bullish run in 2023, fuelled by strategic policy decisions and heightened investor confidence, the market staged another promising outing in 2024.
“Regarding the sectoral outlook, we remain bullish on the banks owing to the high-interest rate environment and operational efficiency. In the Oil and gas sector, we anticipate continued revenue growth for oil marketers in 2024FY, primarily anchored by anticipated increases in product prices.
“Following the lifting of the FX ban on the 43 items in 2023, we foresee the influx of imports, intensifying competition and diluting demand for local players like Okomuoil and Presco. Cautious optimism characterises our view on the Consumer Goods sector, with an expectation of sustained robust revenue growth in 2024FY, hindered however by inflationary pressures,” they noted.
Comercio Partners further noted that investor attention intensified as the nation ushered in a new era with Yemi Cardoso at the helm of the CBN.
“The market anticipates cues on the rate trajectory during auctions under Cardoso’s stewardship. Projections hint at the likelihood of further tightening measures as Governor Cardoso, in recent press statements, has signalled the bank’s commitment to combat inflation. Locally, the expectation is that higher rates will stimulate demand at auctions, with the amount sold likely tethered to the government’s borrowing necessities.
“However, even though inflation may persist the CBN may find other means to mob up money in circulation, through tactics like the removal of the SDF cap, which creates an incentive for commercial banks to deposit excess cash with the CBN,” the investment firm noted.
Robust money supply amid tightening efforts
“Contrary to CBN’s efforts to curtail money supply, the system liquidity remains robust. Notably, the investor appetite for government bonds has seen a substantial uptick. In the Nigerian Treasury Bills (NTB) space, total sales have grown by 3.5percent Year-on-Year (y/y), reaching N4.9 trillion, with total offerings climbing by 4.5percent to N4.16 trillion. The spotlight, however, falls on the remarkable 94percent surge in auction demand, a testament to heightened liquidity amidst escalating rates.
“Heading into H1’24, investors are poised to scrutinise the CBN’s guidance on the rate trajectory during upcoming auctions. The consistent upward trend in auction stop rates across all tenors is expected to persist, serving as a crucial tool for the central bank to manage the money supply in the face of external reserve constraints. “Higher auction rates are anticipated to magnetise liquidity into the market, as local investors seek elevated returns, concurrently prompting an increase in NTB supply,” the report further noted.
Looking ahead to 2024 local fixed income
“As observed in recent years, the budget proposal reveals a deficit of N9.05 trillion, down from N11.60 trillion the previous year. This deficit is expected to be funded through a combination of domestic borrowings (N6.04 trillion), foreign borrowings (N1.77 trillion), multilateral/bilateral loan drawdowns (N941.19 billion), and privatization proceeds (N298.49 billion). “Furthermore, we anticipate that domestic borrowings may surpass estimates due to the minimised use of the ways and means window.
“Regarding foreign borrowings, the expectation is that global interest rates will remain prohibitively high in 2024FY, as market participants price in the possibility of rate cuts from the second half of the year. Consequently, we do not anticipate the federal government tapping into the Eurobond market in 2024”.
The report noted that while delving into the financial landscape of Nigeria, a captivating narrative unfolds as the Central Bank of Nigeria (CBN) unveiled its masterstroke – a groundbreaking banking recapitalisation policy poised to reshape the trajectory of Deposit Money Banks (DMBs).
“In the landscape of heightened recapitalisation, banks facing potential acquisition may witness shares being traded at a premium. Investors keen on capitalising on this dynamic should carefully time their entry into the market. Monitoring regulatory announcements, acquisition rumours, and shifts in market sentiment can provide insights into opportune moments for investment. The ability to anticipate and respond swiftly to developments in the Mergers & Acquisitions (M&A) landscape will be crucial for maximising returns in this context,” Comercio Partners noted in the report.
Comercio Partners graph depicting recapitalisation multiples for various banks based on their current shareholder funds provides a fertile ground for exploration. The analysis aims to delve into the implications of these multiples, shedding light on strategic options available to banks at different recapitalisation levels, and elucidating the potential impacts on their financial stability and market positioning.