TOMIL TRUST LIMITED: CHAIRMAN’S MID YEAR (H2) GLOBAL ECONOMIC ANALYSIS AND FINANCIAL MARKET TRENDS AS THEY AFFECT THE EQUITIES MARKET: BY PROF(DR) MARIUS EMEKA ADIMMADU, CHAIRMAN BOD, TOMIL TRUST (NIG) LIMITED:
GLOBAL ECONOMIC TRENDS IN THE SECOND HALF OF THE YEAR 2023:
Our H1 economic forecast for 2023 underscored the undercurrent of aggressive tight monetary policies by the world’s leading economies in decades, and a raging stagflation in the face of threatening financial market and banking crisis. The banking collapse in the USA and Europe, as well as the burgeoning unserviceable sovereign national debts by developing countries in the global south present a thick cloud of uncertainties in the future of the global economy. What it portends for the global financial system is nothing less than pervasive crisis. The impact of tight monetary policy, stagflation, cheap money, and China’s uncontrollable geopolitical strategic alliance with the global south portend a gloomy and foggy global economic outlook for the remaining part of 2023. An extreme downward trend analysis suggests a possible massive disruptions of the entire ecosystem with long-run consequences to global value chain. Bloomberg Economic forecasts point to a dangling economic crisis. In order words, the world’s economy is precariously trending towards another crisis which will likely add more pains and hemorrhage to both developed and developing countries. The world’s stock markets will be hard put to shade some weights in terms of loses in the market aggregates. Investors apathy and lukewarmness in the equities market could be exacerbated by fear predicated on increased entrepreneurial and idiosyncratic risks. The equities market could wipe out accumulated gains and market capitalization compared with our earlier forecasts at the beginning of the year.
Global Equities market activities since our analysis at the beginning of the year still remain influenced by the following incipient events: increased spate of economic instability exacerbated by a deluge of geopolitical strategic issues; the Russian Ukraine war, the cold war between the USA and China, massive disruptions in global supply chain, soaring inflation, high interest rates, and a deluge of uncouth policies. Also the fear of a global recession, the effects of USA banking crisis, and the recent campaign for alternative gold backed global reserve currency by BRICS, etc., further heightens the organic complexities associated with the global economy. There are other equally important developments during the H1 2023, which include the resurgence of out-of-state financial instruments/cryptocurrencies, and the global Central Banks’ appetite for Digital currencies. Each of these incipient global events and indeed, the composite impact of all the events highlighted above have had negative impact on market aggregates. By default, increased global market volatility, turmoil and thus, hyped investors anxiety and fear. The resonance effects of these global events on market activities could be gauged by some leading market indicators such as MSCI (Morgan Stanley Capital International) World Index which is a barometer or benchmark that captures large and mid-cap equity performance across 23 developed markets (DM). The MSCI index is weighted by market capitalization (MC) because investors are inclined to invest in the equities of large and well established companies that have potential to add value to investor’s equity. The MSCI index appreciated by 9.88% in the Q4 of 2022 (YtD), with a streak of 17.97 at year end. In the USA for instance, the equities markets, Standard & Poor (S&P 500), which is an index of large company stocks rose by 7.56% during the same period, Q4, and YtD of 18.12%. On the contrary, Russel 2000 Index of small companies dipped during the same period, dropped 20.45% over the year. The picture was the same with other markets in Europe, and Asia. The implication was that the fog around the global economy continues to thicken and remains unabated. Another worrisome development is the issue of staggering level of sovereign debt by developing nations. The growing debt burden in developing countries and the ever increasing possibilities of defaults adds to the thickening fog around the global economy in 2023 and beyond. The unsettled trauma arising from the USA banking crisis, the likelihood of new recapitalization of USA Banks, the run on Credit Suisse, one of the leading global financial institution, when welded into the highly probable default of developing countries’ sovereign debts, pushes the global economy to the precipice of another crisis. The trajectory of growth in the H2 and up to the H1-2024, will be shaped by the unfolding drama in the Ukraine Russia war as well as the massive disruptions from Open AI Chat GPT (Generative Pre-Trained Transformer), and Elon Musk’s xAI. The continued advancement in Super Artificial Intelligence (SAI) with recursive capabilities as well as the evolution of super intelligent autonomous technologies may change the contour in the emerging digital ecosystem. The impact on market structures, and outcomes will be profound.
THE FUTURE OF GLOBAL ECONOMY:
The future of global economy increasingly foggy, yet it will be dominated by the interplay between the USA and China and by extension the Ukraine-Russia imbroglio. The Global GDP will grow by $4 trillion by 2024 relative to its 2022 stood at $100 Trillion benchmark. Interestingly, despite the foggy global economic outlook exacerbated by incipient conflicts, geopolitical quagmire, and ubiquitous stagflation, the global economy is expected to grow to $104 trillion in 202 (according to the IMF projection). It is also projected that by 2030, China’s GDP may surpass that of the USA. That change of baton in global economic leadership will smack consternation and perhaps alter the global balance of power for the first time since 1871 when the USA dominated the world economic space as the largest economy in the world. Meanwhile, as the two big economies struggle for global leadership, the economies of developing nations in the global South continued their dystopian engagements, fiddling while the rest of the world moves on a trajectory of unstoppable growth mission. The uncouth behavior of some developing countries and their preferences for complacency as against global economic convergence will eclipse real world growth phenomenon in the Global South. Sustainable growth is driven not by conditional aids and grants from developed nations, nor from institutionalized corruption, but instead, through value creation via production. While the rest of the world in the Global North grows in leaps and bounds, developing counties may continue to buckle under an excruciating burden of debt and exorbitant borrowing costs. Most of the global south’s debt servicing gulp over 65% of their annual GDP. Developing countries and their markets may continue to experience limited access to liquidity, and credit in the future global digital economy, and as a result, may be unable to leverage technology to achieve economic growth convergence with the rest of the world. Even as the world turns and spins around in an uncontrollable ecstasy, pomp and pageantry as a result of projected economic boom from advanced technologies, developing countries fiddling with trivialities may once again recede to a digital dark alley in the emerging techno-driven global growth. The bricks of our fractured world are more glaring and tempestuous in the global south and may worsen outcomes and accentuate economic divergence.
TRENDS IN NIGERIA’S CAPITAL MARKET:
In the face of the above global economic outlook, the Nigeria’s capital market remains resilient and undaunted as if it is insulated from cross border oscillations. Regardless, the new digital age and the incredible power of the internet no country is insulated from the vagaries of global forces. Nigeria may however be distinctively blessed with ingenuous and innovative manpower. This may perhaps explain the continued progress recorded in Nigeria’s economic and financial space. For instance, recently, NGX initiated an innovative investment platform that may soon add momentum to market activities and further deepen financial market intermediation. The initiative called “Non-Depository Receipts, (NDR)” is aims to further enhance capital market activities and promote cross border engagements. The NDR will enable retail and institutional investors to access alternative investment windows through financial instruments listed on some off-shore stock exchanges. This would involve collaborations with other leading off-shore Stock Exchanges such as the LSE, LUSE, GSE, SA, etc. According to Mr. Jude Chiemeka, NGX’s Div. Head of Capital Market, (during the 2023 Nigerian Risk Summit in Lagos), “with this Initiative, Assets Managers, will sponsor the instrument off-shore, convert the receipts and sell off in our local markets.” “In the end, we are not only enabling exposures to foreign exchange, but we are also, preparing a market place with a broader spectrum of participants.” Despite the great strides made by the NGX, over the recent past, there are still certain draw backs that may affect the future of Nigeria’s equities market. One of which is the cloud of uncertainties around the new administration’s new monetary and fiscal policies, as well as the waning market excitement and sentiments, the ripple effects of CBN Governor’s debacle, (Mr. Emefiele Godwin), the removal of fuel subsidy. and a floating exchange rate regime. The floating exchange regime recently adopted by the CBN has long term implications to national economic wellbeing. The dollarization of domestic transactions in Nigeria makes it rather difficult for supply to measure up the demand for forex. The implication is by default, currency devaluation, and the downstream effect may further undermine investments sentiments in the equities markets especially amongst retail investors. Interest in equities in the H2 2023, will be driven by market sentiments and policy environment more so, if they do not translate into sustainable growth in corporate net worth. The other issue likely to exert tremendous pressure on investors financial capacity is interest rates. Retail investors interest in equities may experience an interlude of lukewarmness and caution as the dense fog in the political space thickens. As a result, the raging Bullish market may slide into a bearish market particularly, in the early part of H2 2023. Likewise, the NGX ASI and Market Capitalization may equally dip, in particular, NGX Premium, NGX AFR Dividend yield, NGX Lotus 11, NGX Industrial Goods, NGX Growth and NGX Sovereign Bonds. This will mark the end of market excitement which heralded the dawn of the new administration.
But despite the uncertainties around the new monetary and fiscal policies of the new administration more so as it pertains to the financial assets, there has been a noticeable paradigm shift in investors overall priority. The recent investment surge in Treasury Bills (TBs) and Bonds (TB) underscore the new investors preference. The sudden surge in investors’ interest in TBs market may further dampen enthusiasms in the equities market and perhaps threaten equities market stability. The reason as that as market risk increases, more risk averse investors, will route to a risk free alternative investment window. This new market bride currently biding as high as 19% signals the epoch of this paradigm shift in market behavior. By default, increases in annual TB rate portends a diversion of investment funds away from the equities as retail investors tend to take advantage of the high yielding TB instruments against stocks. Investors routing for a risk-free TB instruments, may provoke a corresponding increase in market lending rates. Any marginal Increase in the rate of TBs, often portends a corresponding increase in bank lending rates. TB’s rate of return is often used to benchmark other debts instruments (such as Bonds). With an inflation rate of 22.5%, and CBN’s interest of 18.5%, portfolio investment may be hard put to maximize their return on their investment (ROI). As yields on TBs increase, the opportunity costs of alternative investments in equities likewise, increase. Increase in TB rates will spike demand for the local currency (Naira). On the long run increased Naira demand may assuage the free fall of the domestic currency, and also, encourage capital importation.
OTTHER POTENTIAL THREATHS TO THE NGX
Against many of the present contending issues such as insecurity, stagflation, thick fog in global economic environment, and other organic complexities in the macro-economic space, the NGX has continued to tower above all expectations. This is against the backdrop new windows being created by NGX to further enrich investors experience and provide new avenues for wealth consolidation. Since the beginning of the year 2023, the Equities market has been bubbling with huge activities enabled by new entrants and market operators. The Bullish market experienced during the H! 2023 gave rise to optimism and market excitements following the new Sheriff in town. Market operators and participants joyfully heralded the new administration hoping to leverage on the expected versatile and innovative monetary and fiscal policies to increase corporate earnings and add value to shareholders; equity. In particular, the financial sub-sector, oil and gas, food and beverages continued to trigger massive returns to the excitement of market operators. For instance, within this period, market capitalization appreciated significantly (by over N5trillion in the H1). The NGX was as well rated highly: 3rd highest performing stock market in the world and of course the best in African. The NGX ASI benchmark index used in measuring the performances of quoted companies (in terms of return and exposure) witnessed an all-time 16-year high of over 60,108.06 at the end of the H1. The relative increase of 8,857.8 or 15% from January, 2023 aggregate of 51,251.06 marks a true watershed in the evolving new threshold of the NGX Limited. Equity capitalization likewise, appreciated significantly. Equities rose by an average of 9.32% at the end of H1 thus, breaking a streak of losses the market experienced during the Month of June, 2923. NGX ASI appreciated by 19% which represents the highest increase since March 2008. These are remarkable milestones achieved by NGX Ltd in the face of global and national economic uncertainties. Market analysts believe that the main drivers behind these wheel of monumental success are mainly the incipient changes in CBN’s Monetary policy framework as well as the floating forex regime. It is believed that the two new policies will sustain the bubble in the markets as well as attract more FDI. In addition, the reduction in deluge of confusing CBN Circulars and monetary policy analogues tended to stem the tide in market volatility. Returns on Equities currently at an impressive 8% (in H1), will minimize the streak of loses experienced early during the review period.
Gains in the stocks of MTNN of +2.77%, Zenith Bank of +4.62, GTCO of +5.28 led the to the observed rise in market capitalization, which closed at N32.73 trillion at the end of H1 2023. The financial service industry, Oil and Gas, the Conglomerates, will continue to influence and shape market activity chart in the rest of the fiscal year 2023.
OUR FORECAST FOR H2:
The current bull in the equities market during the early period of H2 2023 may be sustained subject to the following caveats:
1) Government Pursuit of a strong economic blueprint, and perfect alignment between monetary and fiscal policies.
2) CBN pursuit of an aggressive Capital importation program through de-dollarization of domestic transactions.
3) Government and its agencies to boost inflow of FDI through Diaspora remittances (Nigerians in the Diaspora net remittances have risen to over $34billion, the highest in Africa)
4) Government to pursue macro-economic policies that would create an enabling environment for businesses to thrive and add value through production.
5) A deliberate policy objective toward horizontal integration of informal sector and the formal sectors welded into the formal financial market environment in order to boost NGX aggregates.
6) Create a more efficient financial service delivery system, curb cybercrimes and accelerate financial intermediation leveraging advanced technology and fine tune policies that encourages micro financial service providers (Fintech).
7) Incentivize domestic and foreign investors through special policy specific interventions.
8) Through an innovative monetary policy reform, boost capital inflow, and increasingly, attract new issuers into the Capital market.
9) Reduce the deluge of CBN Circulars that create market uncertainties.
10) CBN reduce current erosion of domestic currency and the drought in forex market: shore up the value the Naira through accelerated capital importation, and abolish the increasing dollarization of domestic transactions.
TOMIL TRUST LIMITED is a trusted ally in the business of creating value to corporate and retail investors in the Nigerian capital market. TOMIL TRUST LIMITED is well equipped and highly diversified to provide investors with the requisite platform and advice on how best to maximize investors returns and net worth through innovative market trend analysis. Our intermediation role as interstices in the national wealth creation grid. TRUST is our watch word. Diaspora investors are encouraged to take advantage of the new windows of opportunity opened by the NGX via off-shore trading and tech listings on the big board.
We at TOMIL TRUST through our global Investment network platforms in Europe and the USA, are ready to assist with evidence based empirical market research toward creating wealth even in a changing world.
TOP EQUITIES TO WATCH DURING THE H2 2023 INCLUDE THE FOLLOWING:
1) Transcorp (with a return of 173%)
2) Conoil in the Oil and Gas Sub-sector ((gained 119%),
3) Nigerian Aviation Handling Coy Plc (114%)
4) Geregu Power, PLC (107% returns),
5) BUA Foods Plc (100% returns), Cadbury Nigeria Plc (50% returns), and PZ Cussions Nigeria Plc (49% returns), Dangote Sugars,
6) In the Banking sub-sector: UBA Plc, GTBCO, Zenith Bank Plc, Universal Insurance Plc, Access Bank Plc Stanbic IBTC Holdings, etc continue to assume the role of market leaders.
7) In the Communication Sub-sector: MTNN, AItel Africa
The general outlook in the equities market for the H2 2023 looks bright despite the incipient macro-economic challenges. We are encouraged by the innovative and pragmatic leadership of the NGX Limited which has shown resilience even in the face of a challenging global business environment. We are very optimistic that investors will smile home with huge capital gains at the end of the H2 2023.
FINAL NOTE:
TOMIL TRUST LIMITED is a trusted ally in the business of creating value to corporate and retail investors in the Nigerian capital market through a free point-blank investment advisory services. TOMIL TRUST LIMITED is well equipped and highly diversified to provide investors with the requisite knowledge of events in the economy that shapes investors’ investment choices. Our investment advisory platform helps to guide investors on how best to maximize their returns and hold a well-diversified portfolio of financial assets juxtaposed against other assets. In today’s digital economy characterized by agility, efficiency and smart technologies, wealth or value creation remains a critical feature which can be harnessed through a trusted intermediary. TRUST IS OUR WATCH WORD. Our role as intermediaries in the interstices of market creating grid positions us well to see the future through the prisms of the present. We encourage Diaspora investors to take advantage of the new windows of opportunity opened by the NGX via off-shore trading and tech listings on the big board and likewise grow their wealth.
We at TOMIL TRUST through our global Investment network platforms in Europe and the USA, are ready to assist with evidence based empirical market research and analysis toward creating wealth for both domestic and diaspora investors.
Prof. M. E. Adimmadu,
Chairman BOD, Tomil Trust Limited
TOMIL TRUST LIMITED is a high profile capital market operator. TOMIL TRUST LIMITED was incorporated in May 1996 (RC No. 294274) with the Corporate Affairs Commission (CAC) Abuja.
The company is also registered with the Securities and Exchange Commission (SEC), the Apex Regulatory Authority in the capital market. TOMIL TRUST LIMITED is dealing member of the Nigerian Stock Exchange.
