Vetiva Cuts Economic Growth Forecast, Remains Positive on Equities

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Vetiva Research has said the Nigerian economy has underperformed initial expectations following a slowdown in agriculture and persistent weakness in services.

The research firm, which is a part of Vetiva Capital, an investment banking firm, therefore cut its economic growth forecast for the 2018 to 1.9 per cent, from 2.4 per cent. Vetiva stated this in its ‘Second Half 2018 Outlook Report on the Nigerian Economy, Key sectors and Capital Markets.’

Head of Vetiva Research, Olalekan Olabode said: “The dimmer picture begins with the oil sector as infrastructure integrity issues prevent Nigeria from producing at capacity whilst oil prices are expected to trend slightly lower in H2’18 on the back of rising global output.”

Vetiva Research expects pre-election activities to steer the economic environment for the rest of the year, with election spending boosting the economy but also inducing greater inflationary pressure.

Chief Economist of Vetiva Capital, Michael Famoroti noted that there are uncertain times ahead.

“Impending elections are also likely to induce greater economic uncertainty and distract policy and governance at the tail-end of the year, neither of which is positive for confidence or investment,” Famoroti said.

Speaking on the fixed income market, he said that the late budget passage, pre-election spending, and food price pressure could induce higher inflation at year-end.

“Despite an improving macroeconomic environment and a semblance of policy stability, Nigeria’s financial markets would likely be steered by the fallout of electoral activities and rising global interest rates,” he said.

However, the firm projected a positive outlook for the Nigerian equities market despite the various pronounced impact the coming general elections would have on the economy.

“Comparable multiples with peers suggest the Nigerian equity market remains undervalued. We maintain a strongly positive post-election outlook on Nigerian equities,” it said.

Vetiva Research also revisited its top “10 High Conviction Stocks” presented at the beginning of the year, which represent key stocks on the Nigerian Stock Exchange (NSE) that are expected to outperform the market by year-end.

Olabode said: “These high conviction stocks have so far outperformed the broad market index by 1.5 per cent on a market cap-weighted basis and 7.0 per cent in simple average returns, and maintain these stocks as key picks for 2018.”

Meanwhile, the equities market opened on positive note yesterday with the NSE ASI, appreciating by 0.34 per cent to close at 37,992.12.