This Week in The Nigerian Capital Market: World Bank and Stock Market Update

On the 24th of June, World Bank provided an update on the development of Nigeria, the Bank disclosed that poverty rate is now projected to increase by 2.4%, implying that the number of poor Nigerians would rise by 7.2 million in 2020.

If you are looking for ideas, insights, policies or you just want to get scared, we recommend this report for you. It is for students, unemployed, Founders and Executives. We attempted a summary of the 88-page-long report for you.

Before we read from The World Bank, let’s listen to tunes from the stock market.

Stock Market: A week in Red

After 30 years, Liverpool finally ended their premier league title drought this week. Their arch-rivals, Manchester United, scored their first hattrick in 7 years this week.

In the stock market, it was another kind of red for Investors this week. The Bears stampede the stock market all week until the final trading hour on Friday when Airtel led the charge of the Bulls to lift the market up from red to green.

Note: we use Bear or bearish to describe the equity market when it’s in red or declining. Bull indicates gain or green. See image of the stock market performance below:

In about 122 trading days year-to-date, the performance of the market has been that of mixed sentiments. This week, sentiments were majorly negative as the market recorded 44 declining stocks compared to just 20 stocks that appreciated. Here is the list of the best and worst-performing stocks for the week.

The $0.03 dividend declared by Airtel was the light the Market needed to end a dark week, month and quarter. Next week will usher in a new quarter, the half-year dividend season. Talking about half-year and dividends, we have a buy rating on the shares of GTB, Zenith Bank and UBA.

During the lockdown, we all saved transportation/fueling cost only to see our data cost surge by over 200%. Microsoft Teams replaced our offices while Zoom replaced training centres and meeting zones. If you believe in the new normal, you should believe in the shares of MTN. We have a buy rating on MTN, they will be one of the biggest beneficiaries of Covid-19. In addition, they pay half-year dividend.

Healthcare stocks are interesting too, the CBN has disclosed that they will be supported with intervention funds during this pandemic. GSK, Fidson and Neimeth are stocks to pick in that healthcare basket, but, like the Coronavirus, these stocks are not for weak hearts, they are volatile! If you are averse to risk, it’s better you stay safe.

We like the shares of Presco and Okomuoil too. According to The World Bank, Agriculture is the only sector that is projected to grow in 2020, that sector is somewhat shielded from the effects of lower oil prices.

On a general note, don’t run after prices when the market is in a bearish mode, let prices find you. If you find your stock, don’t rush to commit your funds at once, buy in bits. Most importantly, talk to a stockbroker.

Click on the link https://bit.ly/2XrvIf9 to open a stockbroking/share purchase account and trade within 24 hours. Send your questions to [email protected].

Nigeria Development Update (NDU) by The World Bank

The Nigeria Development Update (NDU) is a World Bank report series produced twice a year. The NDU assesses recent economic and social developments and prospects in Nigeria, and places these in a longer-term and global context. The NDU also provides an in-depth examination of selected economic and policy issues and an analysis of Nigeria’s medium-term development challenges.

Disruption in Flow of Dollars: weakened oil prices, eroding foreign portfolio flows and disruption in foreign remittances

The macroeconomic implications of COVID-19 in 2020 and 2021 will be severe even if Nigeria manages to contain the virus. Nigeria’s economy was still recovering from the 2016 recession when the COVID-19 pandemic emerged in early 2020.

• The collapse of oil prices is destabilizing Nigeria’s macroeconomic balances.
• Over the past five years, oil has represented:
  • More than 80% of exports
  • 30% of banking-sector credit, and
  • 50% of general government revenues.
• A large share of the country’s non-oil industrial and service sectors also relies on foreign-exchange inflows generated by the oil industry.
• Slump in oil prices reduced government revenue from an already low 8% of GDP in 2019 to a projected 5% in 2020.
• This sudden drop in revenue comes just when fiscal resources are urgently needed to contain the COVID-19 outbreak and stimulate the economy, creating a financing gap that threatens to destabilize the government’s fiscal position.
• The pandemic will reduce global remittances to Nigeria, which in 2019 were equivalent to 5.3% of GDP and 40% of oil exports.
• The fall in remittances is likely to affect household consumption because half of Nigerians live in remittance-receiving households, of which about a third are poor.
• Meanwhile, eroding investor sentiment is causing a decline in foreign portfolio flows (volumes were down 46% in the first quarter of 2020), thus compounding the pressure on foreign reserves imposed by the widening current account deficit.

Recession is certain: it can be twice as deep as 2016 and worst in 40 years

The Nigerian economy is expected to contract in 2020 by at least 3%. The projection assumes that oil prices will average $30/bbl, the domestic spread of COVID-19 will be largely contained, and current response policies will continue.

• In the baseline scenario, the economy would contract by 3.2% this year. This assumes an annual average oil price of $30 a barrel.
• It also assumes that the spread of COVID-19 eases by the end of the second quarter and is contained in Nigeria by the third quarter of 2020.
• Unlike the 2015–16 oil shock, when COVID-19 emerged Nigeria’s external vulnerabilities were already heightened. This will make the predicted 2020 recession at least twice as deep as that of 2015–16 and the deepest since the 1980s.
• In this scenario, real GDP growth would recover gradually and by 2022 would converge with the population growth rate of 2.6%.

Growth is uncertain: unpredictable oil prices and OPEC, severe Covid-19 outbreak

Weakening global demand for oil, compounded by the unpredictable policy decisions of OPEC and other major oil producers, are serious threats to Nigeria’s economic outlook.

• Unlike the 2015–16 oil shock, when COVID-19 emerged Nigeria’s external vulnerabilities were already heightened. This will make the predicted 2020 recession at least twice as deep as that of 2015–16 and the deepest since the 1980s.
• In this scenario, real GDP growth would recover gradually and by 2022 would converge with the population growth rate of 2.6%.

Poverty: COVID-19 shock alone will push an additional 4.9 million Nigerians into poverty this year

The human cost of COVID-19 will be high: beyond the loss of life, as the economy contracts and per capita incomes fall, the pandemic is projected to leave 5 million more Nigerians living in poverty in 2020 relative to the pre-COVID forecast.

• In 2019, about 83 million people—equivalent to 4 in 10 Nigerians—were already living below the national poverty line, with millions only barely above it, making them vulnerable to falling into poverty when shocks occur.
• Before COVID-19, the poverty rate was expected to increase by about 0.1 percentage points from 40.1 percent in 2019 to 40.2 percent in 2020, implying that the number of poor Nigerians would rise by 2.3 million, largely due to population growth.
• However, due to the recession, the poverty rate is now projected to increase by 2.4 percentage points to 42.5 percent in 2020, implying that the number of poor Nigerians would rise by 7.2 million. Thus, the COVID-19 shock alone is projected to push an additional 4.9 million Nigerians into poverty in 2020.

This unprecedented crisis will require an equally unprecedented response.

Download full report here.

Thank you