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Wednesday, February 5, 2014

JANUARY ECONOMIC AND MARKET REVIEW

The Global Market:

Global equities came under pressure at the beginning of the year having been stretched after a 2013 bullish run. Combined with investors re-evaluating the QE tapering threat, the U.S economy standing resilient and corporate performances being mixed, the equities market performances in advanced markets remained minute. After a good run in 2013, emerging market stocks also opened 2014 trading on a bearish note, with weak Chinese manufacturing data released during the period complicating issues.

The month under review was a challenging one in the crude oil market as investors laid their bets cautiously amidst supply concerns. Having gained only 0.10% (for Brent crude prices) in 2013, the commodity opened trading in 2014 with a MoM loss of 4.33% as a combination of factors (middle east crisis, Syria  war e.t.c.) weighed down on prices.

Also following the bearish trend of the Crude Oil Market, Gold made a huge loss of 28.33% in 2013 but took a turn around in 2014 to MoM gain of 3.34% .

The Nigerian Market:

The Nigerian Equity Market ended on a positive note closing at 47.19% in 2013 but seem to have lost it steam as it closed January 2014 on a bearish note with a M0M loss of 1.83% .

The T-Bill market got a boost this January from the liquidity surge in the system as a result of the redemption of N1trillion worth of AMCON bonds on the 31st of December 2013, the inflow of about N290billion from FAAC, and a maturity of a significant amount of OMO bills. 
Therefore rates in January for short term notes were doing an average of 9.00% and long term notes an average of 11.00%

The bond market followed the trend in the T-Bill market, the market benefited from the high level of liquidity in the system but came under pressure later in the month as offshore investors withdrew capital and sort the Dollar.

The Nigerian Currency  (that is N/$ rate) depreciated by 2.73% in 2013 and further dipped in January 2014 by 1.37% to close at N162.500.

Also following the bearish trend, the Nigerian Foreign Reserve depleted by about 1.30% ($568million) in 2013 and further dipped by about 1.45% ($622million) M0M to close at about $42billion.

The Global Market Outlook:

The developed market stocks are likely to gradually overcome the U.S Fed-induced pressure, particularly on persistently strong U.S economic data and the Euro government's commitment to a progressive recovery. Stable corporate earnings would also boost market recovery. 

On the other hand, the emerging market stocks are expected to take a nose dive as the recovery in advanced economies and the scale-back of U.S QE would continue to influence capital reversal away from local assets causing a great deal of volatility. The recent spree of interest rate hikes may temper the wave of outflow.

The Crude Oil prices are expected to stay supported at $100 per barrel 

The largest economies of the world are all grossly devaluing their currencies. This will not be consequence-free as Gold and silver will be direct beneficiaries starting with rising prices. Since the Fed has declared "QE," it's logical to conclude that this expansion of the monetary base will continue. If it grows at the same pace through January to the end of the of the year 2014, there is a high likelihood the gold price will continue to rise. The message from these likely outcomes is to continue accumulating gold.

Outlook of The Nigerian Market

The equity market is expected to rally on last years performance for H1 but may become bearish in H2 due to some underlying factors like the Fed QE tapering, change of the CBN Governor and a possible change in monetary policy, excess liquidity as a result of the upcoming February, 2015 election which may possibly increase core inflation.

The rally may come to a halt as contagion emanating from worries about the investment cases for emerging markets and the implementation of 75% CRR on public sector fund slows down foreign inflows. Therefore, the fixed Income and money market are expected to remain relative flat for H1 but may become bullish favouring specifically the short term investor by H2 as investors would seek to preserve their capital and OMO sales are expected to push yield higher.

The Nigerian foreign reserve decline is largely as a result of inadequate revenue steaming from oil theft and improper remission from NNPC and CBN intervention at the inter-bank currency market to stablize the Naira. The downside to the continuous depletion may be that CBN may no longer be able to support the Naira which will in turn lead to depreciation of the country's currency, a fall in foreign investor confidence at this point will be inevitable and the country's economic profile may no longer look attractive.

DISCLAIMER
While I check for accuracy and invest time in research, I am not liable for any misinformation. The details here should be construed as my investment view and any use of same is at owners risk. 

17 comments:

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