Sam Chidoka is the Managing Director of Kairos Capital. In an interview with Nairametrics, he discusses a wide variety of issues including how he expects markets to move post elections, as well as an outlook on interest and exchange rates.
A lot is riding on the elections. The elections are too close to call. The trajectory of the economy especially in the financial industry where we play will depend on the outlook of the government. We’ve seen one government in power for three years plus, we can guess where they will go. We’ve seen new kids on the coming on the block. If any of them wins, the trajectory changes.
He however expects economic activities to pick up in the second quarter of 2019.
All in all, its going to be an interesting year for the country. Q1 has been sacrificed for elections. From Q2, we will begin to see activities again.
Outlook post elections
Post election, Chidoka expects yields and inflation rate to taper down.
We are hopeful that once the elections are offer, yields will begin to taper down again. We are hopeful that the trajectory of inflation will continue, and so the prime lending rate will come down. You will find more corporates coming to the market.
FG to go ahead with asset sale
In order to plug a budget deficit, the Federal Government may have to divest from a few assets.
The FG will need to sell some assets, so we will see some traction in the advisory space in terms of DIVESTITURE from the FEDERAL government, we hope to tap into that. The FG will continue to have to raise money. There is a deficit and that deficit will worsen if the price of crude oil goes down.
Expectation for equities post elections
The Kairos capital boss also expects a rebound in the stock market, after the elections, due to attractive valuations.
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We expect the foreign portfolio investors to come back after the election. Election jitters affected the equities market. Most of the people who had investments in our markets, felt the need to exit, wait for us to have our elections and probably come back.
The good part is if you look at the NSE, companies are trading at very low prices. There is an opportunity. There is an upside. People are looking at prices and intrinsic value of these companies, and these companies can do better.
Chidoka also stated that he expects some states to approach the bond market after the elections.
Foreign portfolio investors are also likely to return, as the returns in the Nigerian market, are not present in theirs.
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We expect that after the elections, the fpis will come back because there is a huge upside, and there are not many emerging or frontier markets that will have such upside. The returns they are likely to get from our market, are much higher than what they will get in their market.
On Foreign exchange rate
Chidoka expects a slight devaluation in the event of oil dipping below the $60 mark.
What happens with the foreign exchange market, is hugely dependent on oil prices. If oil happens to stay around $60, I think the CBN will be able to manage and play it for a while. But if it dips like it did in December, and continues to do around closer to $50, we don’t think the CBN will have the resources to continue to intervene in the fX market on a weekly basis.
In 2018, CBN was doing as much as a billion dollars in some months just to stabilize the Naira. We don’t think thats sustainable. Over time, you are going to have that interplay between our foreign exchange reserves dipping and the Naira. At some point, you are going to have to let one go.
What may likely happen
He however believes a slight devaluation would occour, when the country’s foreign exchange reserves hit the $30 billion mark.
When the foreign reserve gets to a certain level, maybe the 30’s, there is going to be some kind of uptick in exchange rate and CBN wont be able to manage that anymore. We don’t think it (THE DEvaluation) will be anything drastic.