Higher interest rates will persist in 2023 with focus on yield, according to a report released by Access Pensions Limited.
Access Pensions Limited is a licensed Pension Fund Administrator formed from the merger between First Guarantee Pension Limited and Sigma Pensions Limited, and regulated by the National Pension Commission.
It stated in the report that, “In terms of investment opportunities, we view the combination of inflation remaining sticky at elevated levels (18 per cent to 20 per cent), the potential for further naira adjustments and large government borrowing requirements with limited fiscal recourse to CBN financing as suggestive of a high interest rate environment over 2023.
“After two years of unorthodox monetary policy, we expect the CBN will look to tighten policy to bring down inflation and stabilise the currency by raising the returns for holding Naira.
“For equity markets, while a smooth transition of power is positive for investment outlook, we expect offshore investor appetite for Nigerian equities to remain weak pending a credible adjustment in the naira and increased flexibility in the exchange rate system.
“This leaves equity market outlook, as has been the case over the last three years, dependent on the activities of domestic institutional investors.”
It added that, “Here, while the pick-up in interest rates over the last six months will work to soften appetite for the asset class, continued attraction towards bellwether cyclical themes around financial inclusion (read telecoms), interest rates (read financials) and construction (read materials) will support the overall market.
“As in 2022, we think the USD repatriation trade will continue to support valuations for dual-listed stock while consumer names may continue to struggle under the weight of an inflationary environment.”
The report noted that Nigeria would head into the 2023 elections to vote a new president.
It said, “Whoever emerges as president in the February 2023 polls faces a loaded in-tray, as decisive actions are required on several burning issues: insecurity, petrol subsidies and on the exchange rate system to name a few.”
From an economic and financial market perspective, the report expected 2023 to likely be a tale of two halves with the first half focused on figuring out the identity of Nigeria’s next political leadership team and the latter part about figuring out their policy direction over the next four years.
Overall, it added, the investment landscape in 2023 would be shaped by global central banks pulling the plug on the interest rate tightening cycle over 2023; Oil prices would likely recede from the conflict-supported levels towards an average around $70-80/bbl; Nigeria’s oil production is on track towards 1.5-1.7mbpd, a recovery from the depressed levels (sub 1mbpd) of 2022 as pipeline security improves.”
According to the report, the change in political leadership post the 2023 elections would provide the leeway for inflationary adjustments to petrol prices and the exchange rate; a large fiscal deficit would continue to require higher domestic borrowings but without the option of ways and means financing from the CBN.
