Outlook 2021: What the year holds for Nigerian economy, markets

The Nigerian economy has faced unprecedented challenges in the past year due to the global pandemic and economic disruptions. However, as the nation gears up for 2021, there is renewed optimism in the air. The year 2020 saw significant movements in Nigeria's equity markets, with the NSE All-Share Index gaining over 50% by the end of the year, the highest yearly gain since 2008. This surge was driven by a shift in investment from fixed income to equities, supported by policy changes by the Central Bank of Nigeria aimed at reducing interest rates. The African Continental Free Trade Agreement also kicked off on January 1st, heralding a new era of economic collaboration and growth across the continent. In a recent CNBC Africa interview, Wale Olusi, Head of Investment Research at United Capital, and Omotola Abimbola, Macro & Fixed Income Analyst at Chapel Hill, shared insights on what lies ahead for the Nigerian markets and the broader economy in 2021. Let's delve deeper into their analysis and predictions for the year. Reflecting on the past year, Wale Olusi highlighted the rollercoaster ride that investors experienced in 2020. The Nigerian markets started strong but took a hit as the COVID-19 pandemic unfolded globally. However, with the Central Bank's policy interventions leading to a drastic reduction in interest rates, investors shifted focus to high-yield equities. The market saw a surge in November, triggered by corporate actions from key players like Dangote Cement and MTN, propelling the index to record highs. The bullish sentiment was further bolstered by optimism surrounding sectors like cement and telecommunications. Transitioning to the fixed income market, Omotola Abimbola underscored the resilience of Nigerian sovereign bonds in 2020. Despite the economic challenges posed by the pandemic, the bond market recorded impressive returns, with the S&P economic composite index posting a remarkable 40% gain. Long-dated bonds outperformed, with the 30-year Arab bonds yielding over 60%, signaling strong investor confidence. As 2021 unfolds, Abimbola anticipates a gradual increase in the yield environment, driven by market dynamics and inflation concerns. Economic recovery and policy clarity will play a pivotal role in shaping the fixed income landscape in the coming months. Looking ahead to 2021, Wale Olusi shared a cautiously optimistic outlook for Nigerian equities. While he expects a mild bullish trend supported by economic recovery post-Q2, he foresees challenges in returning to pre-2019 levels of performance. The oil and gas sector is positioned for recovery, with global production cuts and stable oil prices driving sectoral growth. Olusi predicts oil prices to average around $50-$60 per barrel, translating into positive momentum for energy stocks. In the fixed income domain, the focus shifts to the trajectory of the yield curve and government borrowing appetite. Olusi projects a gradual uptick in yields from Q2 onwards, influenced by central bank policies and market sentiments. The bond market will closely monitor inflation trends and external reserves as indicators of future yield movements. The intervention in the foreign exchange market will be crucial in stabilizing rates and aligning the various exchange rate windows. As the discussion turned to the broader economy, Omotola Abimbola emphasized key drivers of growth for 2021. With a stronger outlook for oil prices and increased fiscal spending, the economy is poised for a rebound. The government's expansionary budget and deficit spending are expected to stimulate economic activity and support GDP growth. While challenges remain, such as the ongoing impact of COVID-19, Abimbola remains optimistic about the fiscal measures in place to bolster the economy. In conclusion, 2021 holds a mix of opportunities and challenges for Nigeria's economy and markets. The resilience displayed in the face of adversity in 2020 sets the tone for a year of recovery and growth. As stakeholders navigate the evolving landscape, prudent policies, strategic investments, and market insights will be instrumental in shaping Nigeria's path to economic prosperity in the months ahead.