The fast-growing sectors of the economy is monitored by both local and foreign investors, aiming to earn a good return on investment to achieve their goals.
Such sectors include information and communication with about 1.26 percent Weighted Real GDP Growth Rate in the first quarter (Q1) of 2019, agriculture with about 0.69 percent, transportation and storage 0.40 percent, and trade with about 0.14 percent of weighted real GDP growth rate.
According to FSDH Merchant Bank limited, policies should target slow growing sectors or sectors that are in contraction. These are electricity, gas, steam, and air conditioning supply, water supply, sewerage, waste management, and remediation, education, administrative and support services, human health, and social services, mining and quarrying, administration, financial and insurance, and public administration among others.
The economy requires quick actions and fiscal stimulus to achieve growth. Actions in President Buhari’ssecond-term are needed in the following priority areas: petrol and electricity prices, security, road and rail construction, solid mineral and enforcement of law and order.
Meanwhile, the economy continued on the recovery path, the strongest Q1 growth since 2015. The growth rate is, however, lower than the population growth rate, thus little to celebrate. Agriculture recorded the strongest growth since Q1 2018 while real estate exited depression.
The CBN has signaled that it would support growth going forward. The recovery in the economy may support job creation and credit expansion. However, complementary fiscal measures to improve the business environment are needed, FSDH said in its May 2019 report.
Investors’ interest in quality debt securities is strong in the Nigerian financial market as of May 2019. The drop in the yields on the Nigerian Treasury Bills (NTB) has inspired issuance of Commercial Papers (CPs). FSDH Research observes huge subscriptions for the debt securities in the market in the last few months.
The yields on Nigerian Treasury Bills (NTBs) may remain low and at the current levels in July. FSDH Research expects the low yields to attract more corporates to issue Commercial Papers (CPs) to meet their short-term capital requirements, therefore providing investment opportunities for investors in fixed income securities. The current high appetite for debt securities in the Nigerian capital market provides incentives for corporates to also issue corporate bonds. Investors should take advantage of the expected increase in debt issuance to position for quality debt securities.
Corporates which have interest rate liabilities may consider interest rate swap to manage the risk associated with the liabilities. The monetary policies of the Central Bank of Nigeria (CBN) currently favour a low-interest rate regime to stimulate economic growth. However, any internal and external shock on the economy may lead to a change in the monetary policy stance. This may result in an elevated interest rate risk.
The yield on the US Treasury Note trended downwards as the Fed maintained the rate at its May 2019 meeting. However, the current yields on the US Treasury Notes are higher than the coupon rates
The yield on the FGN Bond trended downward as investors took positions in the Nigerian fixed income market. The yields on the NTBs trended downward from the beginning of the year.
The current CBN policy stance favours low-interest rates and yields in the short-term. However the trigger points for a rise in interest rates and yields in the short-term are: A possible drop in the crude oil price towards US$60/b on account of a slowdown in global economy, A possible drop in inflation rate on account of an increase in PMS price and electricity tariff, and a possible increase in government borrowing on account of fiscal deficit
