The year 2020 was indeed a challenging year for most countries across the globe as COVID-19 pandemic disrupted global economic activities. The COVID-19 pandemic caused a severe global economic crisis which caused recession in some nations and in others a depression. It is the worst global economic crisis since the Great Depression. The crisis began due to the economic impact of the ongoing COVID-19 pandemic. The first major sign of a recession was the collapse of markets during the 2020 stock market crash, which began in late February and lasted through March. But the stock market crash was short-lived, and many market indices around the world recovered or set new records. By September 2020, every advanced economy had fallen to recession or depression, whilst all emerging economies are in recession. Modeling by the World Bank suggests that in some regions a full recovery will not be achieved until 2025 or beyond.
The better part of last year was on lockdown and another lockdown is imminent as the second wave of the coronavirus has emerged. As part of measures to prevent the spread of the second wave of the coronavirus, the government has instructed some workers to work remotely.
Government’s effort to stimulate the real sector of the economy has been impressive as CBN in 2020 lowered the rates in the money market. The ripple effect was seen on the equity market as the market closed the year on a positive note.
Commenting on the economic outlook for 2021, Mr Bright Otoghile, Managing Director of Gruene Capital Limited stated thus:
“The Nigerian government tend to be a very conservative government and the policy trust is also centered on that. With the focus on strengthening aggregate demand for individuals and businesses, that would also tell you that the policy trust is to revive the economy given the impact of covid-19 which obviously the pandemic is still very much around. Essentially, the large part of last year, the sentiment that prevailed towards the last part of year 2020 is still very much around with us. Nothing has changed generally. The only item that has changed from the political economy is the opening of the border which is not total. Another threat factor that we have in the system is the price of dollar which aggregately is centered on our mono product economy and that is also an issue that is facing us. The rising cost of doing business has not really helped matter even though the government is finding way to ameliorate the business environment for individuals and corporate bodies, the challenges are still there.
“So how will all these impact on the pricing of assets from landed properties, to equipment, financial assets and the recent one which is cryptocurrency? These are the issues we should be looking at. But all these are driven by demand and supply.
“Looking at the financial assets which is our major focus, by the time they that start releasing the full year report, possibly the first quarter, the impact might not be strong. Because the impact so far we’ve seen in the market has factored in all these expectations. So the driving force that could have been there is the dividend policy of each company; and believe you me, it will be difficult for companies to increase their dividend payout at this time of the year. If that is taken as given, then we should not expect any increment on year on year basis on the dividend payout of some of these companies. If that is taken as given again, how will it impact on the share price of companies? Yes we might see a significant growth in some company’s turnover, business profit; but one thing that will not be left out is the increase in cost of doing business. So if you can manage the topline and bottom line as well, yes you can tell your shareholders you are good to go. But it’s still not uhuru for every business entity in the system. The rising cost of import, the cost of sourcing for dollars, the increasing dependency on raw materials especially imported raw materials is still there and this problem will continue until the government find a way around it”.
“Believe you me, the hope of the government doing this is still very far, given the fact that 2023 election is around the corner. So the focus of the government might be distracted by electioneering campaign that is about to set in the later part of this year or 2022.
”That being said, let us see how the first quarter will drive. By then we should be able to extrapolate what will happen at the remaining quarters. However, what we have seen now is not so far from what we saw in the last quarter of last year. So let us work on quarter to quarter and see how financial assets would be priced and every other assets class in the system.
However, if you are looking at robust return on investment, Nigeria has actually offered many compared to others we have in the view. But one thing we need to also look at is how sustainable are these returns. Any major shock in the system is likely to put a stop to some of these asset pricing we’ve seen. They are not bubbles. They are the real worth of what the price of an asset should be. However most of the prices you are seeing are actually trading pre-covid. We want to believe that with the development of the covid-19 vaccine and the vaccine being available to the third world countries, we are likely to see a balance in sentiment about financial assets pricing. But for now, let’s take it as it is given and let us see how the trend will continue.
For investors that are looking at the market, still asking what price is worth entering in. My advice is this; while you are thinking of what to do, how to invest, where to invest, also try to look at the operating environment so that you don’t put all your eggs in one basket. What im saying is this, if you choose to invest at this time, you do it on a piece meal basis. So if you have N1 to invest, I will advise, you go in with your 50 kobo, leaving the other 50 kobo to buy in whenever there is a shock that could result in depression of price, rather than having everything in one”.
According to Mr Aruna Kebira, Chief Dealer of Global View Capital Limited, the outlook for 2021 is a positive one, based on the positive key signals on ground.
“When we actually look at what is happening; oil price has gotten above $54 per barrel. I don’t think exchange as we speak now is anything worse than what it did in December 2020. OPEC+ has agreed for a cut back for January and February. So I’m not looking at the drop in the price of oil which to a very large extent is a benchmark to our reserve; and our reserves are also growing. So as far as I’m concerned I am not seeing any gloom in the system yet. If you talk about inflation, the boarders have been opened. What is actually causing the inflation is because of food. By the time the imported things are allowed to come into the country, it’s going to bring down there prices of our locally produced goods; so inflation will drop.
Whether CBN is still going to hold the MPR in their next meeting is left for another discussion. But I don’t think that they are going to tamper with it. Again, there stance on money market rate is not done to favour the capital market. They did it to jump start the real sector of the economy. And the real sector of the economy has not gotten to the desired level. So they are going to still keep the rate low, which will continue to work in favour of the capital market. So I’m looking at the market in bullish mood between now and when dividends are paid”.