Global Economy
United States – US Economy “No Gree” for Doomsayers, Expands by 3.3% in Q4:2023 and 2.5% YoY in 2023FY.
During the week, the US Bureau of Economic Analysis released the First Estimate for Q4:2023 GDP figures. As culled from the report, the US Economy expanded by 3.3% YoY (compared to 4.9% YoY in Q3 2023). The expansion can be credited to the growth in consumer spending, exports, state and local government spending, nonresidential fixed investment, federal government spending, private inventory investment, and residential fixed investment.
For 2023FY, the US Gross Domestic Product (GDP), according to preliminary estimates, advanced by 2.5% YoY, surpassing the 1.9% YoY growth observed in 2022 FY.
Source: US BEA, Zedcrest Wealth
While the GDP growth was somewhat slower than the previous quarter, it still exceeded analyst expectations. Many had anticipated a more subdued growth, factoring in the anticipated impacts of aggressive interest rate hikes on economic growth. However, the resilient US labor market, characterized by lower job cuts and increasing wage growth, has continued to support overall economic development.
Looking forward, our forecast remains unchanged, anticipating that the US Federal Reserve will commence rate cuts in H2:2024. This projection is grounded in the observation that inflationary pressures are relatively subdued, and the recently released PCE figures for December 2023 (PCE – 2.6%, Core PCE – 2.9%) further indicate a continuing deceleration in inflation over time.
Euro Area – ECB Further Hits the Snooze Button on Interest Rates Hike
At its first monetary policy meeting of the year, the European Central Bank’s monetary policy committee opted to maintain interest rates and adopt a cautious stance while assessing economic trends. The committee retained the key interest rate at 4.00%, the main refinancing rate at 4.50%, and the marginal lending facility at 4.75%. This choice reflects the committee’s perspective that current rates, especially the main refinancing rate at a 22-year all-time high, are sufficiently elevated to mitigate inflationary pressures.
Source: Eurostat, Zedcrest Wealth
We uphold our projection that the European Central Bank (ECB) will maintain stable interest rates until the second half of 2023. We anticipate a continued decrease in inflation throughout the year as the effects of prior aggressive rate hikes continue to manifest. Nevertheless, we anticipate the ECB initiating rate cuts later in the year, preceding actions by the US Federal Reserve.
Domestic Economy
The Nigerian Stock Exchange in 2023
During the week, the Nigerian Exchange Group released the Domestic and Foreign Portfolio Investment report for December 2023. As culled from the report, Total Transactions rose 14.38% MoM and 144.42% YoY to settle at N343.90bn (USD 382.59mn). To put it into context, Total Domestic Participation soared 29.10% MoM and 135.90% YoY to N296.03bn while total Foreign Participation declined 32.93% MoM but increased 214.73% YoY to settle at N47.87bn. For the most part, Total participation on the bourse for 2023FY rose 53.96% YoY to N3.58trn (vs N2.32trn in 2022 FY).
Domestic Retail and Institutional Investors
From our analysis, the figures for Total Domestic Retail Investors in December 2023 declined 1.26% MoM but rose 159.67% YoY to N91.61bn while Total Domestic Institutional Investors figures rose 49.74% MoM and 126.60% YoY to N204.42bn. During the year, we observed a notable surge in the proportion of Domestic Institutional Investors participating in the local stock market. This uptick can be attributed to the favorable performance of the NGX, driven by pro-market policies implemented by the new administration. Additionally, the reduction in yields within the Fixed Income market, particularly towards the end of the year, contributed to the overall positive market dynamics.
We expect the trend to persist in 2024 FY as we envisage improved participation on the local bourse this year. The potential listing of new companies such as NNPCL and Dangote Refinery is expected to enhance investor sentiment, contributing to the positive dynamics within the equities market.
Foreign Investors Participation
Total Foreign Portfolio participation on the local bourse for 2023 FY rose marginally by 8.44% YoY to N411.62bn (vs N379.bn in 2022FY). Over time, foreign investors’ participation in the NGX has remained lackluster given the myriad of problems that have pervaded the Nigerian economy. The persistent scarcity of foreign exchange (FX) in the Nigerian market remains a key factor contributing to this lack of enthusiasm. Despite various initiatives and measures implemented by the Central Bank of Nigeria (CBN) to boost FX availability, the underlying issues continue to hinder sustainable progress. In the foreseeable future, we anticipate minimal alterations to this scenario, as the structural challenges underpinning FX scarcity persist.
Outlook for 2024
We maintain a bullish outlook for 2024 as we expect factors that we have stated in our previous report to continue to drive the performance of the equities Market. These factors include New Listings, Bank Recapitalization, Direction of Yields in the Fixed Income Market, A New Awakening, and Earnings Results.
Source: NBS, Zedcrest Wealth
The Nigerian Equities Market – This Market “No Gree” Slowdown o
The Nigerian Equities market closed the week with a bullish momentum and the NGX AllShare Index (ASI) advanced 8.32% WoW, crossing 100,000 points to settle at 102,401.88 points. As a result, the year-to-date (YTD) returns settled at 36.95%. Topping the gainers chart were TRIPPLEG (+32.24% to NGN2.83), DANGCEM (+28.82% WoW to NGN694.10), and SUNUASSUR (+25.00% WoW to NGN2.25). The week’s top losers were VERITASKAP (-23.38% WoW to NGN0.59), TIP (-21.77% WoW to NGN2.30), and CADBURY (-20.86% WoW to NGN22.95). We opine that the equities market will remain bullish in the coming weeks as investors continue to search for fundamentally sound tickers with decent dividend
returns.
The Nigerian Fixed Income Market – Visited by the Bears
At the recent NTB auction, the average stop rate rose by 288bps to 7.90%, while the bid-to-cover ratio fell by 76.76% to 4.69x. The demand for the 364-day instrument increased to NGN1,308.77trn. In the secondary market, the NTB market ended the week bearish with a 334bps rise in the average yield to 6.73%. Similarly, the FGN Bond market saw a decline, closing with a 24bps increase in the average yield at 13.80%. For the most part, the Naira Fixed income market closed in the negative territory, as the average yield edged up 179bps to 10.26%.
