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2021 Macroeconomic and Equities outlook

The economy is projected to exit recession in 2021, supported by the gradual normalization of economic activities.

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Last week, we published Nigeria’s Macroeconomic and Equities outlook for 2021, which reflected our views on the economy and financial markets. In our view, without a doubt, 2021 has begun amidst uncertainties for the Nigerian economy. The Nigerian economy slumped into recession in 2020, occasioned by the headwinds associated with the Covid-19 pandemic. We project the economy to contract by 2.7% in 2020.

The economy is projected to exit recession in 2021, supported by the gradual normalization of economic activities, as the impact of the lockdown in 2020 continues to fade. We expect growth to be driven by the non-oil sector, supported by gains from agriculture and the telecommunication sectors, the combination of which accounts for about 38% of the GDP basket. Downside risks to our forecast are linked to the lingering effects of the pandemic caused by the delayed distribution of effective vaccines.

The inflation rate grew strongly in 2020, on the back of supply chain disruption emanating from the pandemic, FX restrictions, border closure and climate-related shocks. Inflation is poised to maintain its ascent in 2021, with pressure expected from both the food and core baskets of the CPI. Overall, we expect headline inflation to average 16.4% in 2021 (compared with 13.9% in 202o) with year-end figure at 14.6%. In 2021, we expect the current account deficit to narrow (estimated at USD10.80bn (2.31% of the GDP), supported by a gradual recovery in global economic activities and firming crude oil prices.

The Naira was devalued across all the segments of the FX market in 2020. In 2021, with crude oil prices poised to improve alongside dollar-dominated-budget facility from the World Bank, we expect the CBN’s monthly intervention to gradually increase to pre-pandemic levels and we expect the CBN to devalue the Naira to at least NGN420.0/USD in 2021. With GDP growth projected to turn positive in the second quarter, the CBN might progressively re-direct its policy to a hawkish stance, in favour of exchange rate stability.

The NSE bourse’s valuation (relative to peers) at the beginning of 2020 was underpriced at 7.1x (MSCIEM:15.4x, South Africa: 15.7x, and Egypt:11.8x). By the end of the year, however, the trend had reshuffled a bit with the Nigerian market recording a P/E ratio 15.0x trumping Egypt (12.0x) and Kenya (11.0x) while trailing South Africa (27.0x), MSCIEM (25.0x), and MSCCIFM (22.0x). Even though the market had a bullish run in 2020, the performance was driven mainly by gains from stocks in the Industrial Goods sector and some food processors.

In our view, many of the banking tickers remain relatively undervalued with many trading significantly below book value.

We believe the factors that would determine the path of the market in 2021 have expanded beyond oil price, monetary policy and the external economy to include financial system liquidity, yields in the fixed income space, corporate performances and corporate actions.

Within our coverage universe, we retain Buy ratings on UBA, Access, Zenith, Guaranty Trust Bank, FBNH, Dangote Cement, MTNN, Flourmills and Dangote Sugar. Essentially, we anticipate that for as long as buying interest in the market is sustained, we expect a re-rate of these stocks.


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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