Being an Analyst Note issued by Proshare Research on October 5th , 2022

World Bank Group Downgrades Nigeria's Growth Outlook

The October 2022 edition of the World Bank's Report titled: Africa's Pulse downgraded Nigeria's 2022 GDP growth outlook by 0.5% to +3.3% due to an underperforming oil sector. According to the report, the challenges in the oil and gas sector would also account for an elevated government deficit over the forecasting horizon, increasing Debt pressures to 102.3% of GDP by the end of 2022. On a brighter note, the current account balance is expected to improve from an account deficit of -0.4% of GDP in 2021 to a surplus of 1.1% in 2022.  Analysts advise that the government deficit must be rationalized by addressing oil theft and thoroughly reviewing the subsidy regime.

Security and Extreme Weather Serve as Hindrance to Agricultural Development in Nigeria

One of the many issues hindering the Nigerian agricultural sector is the lack of access to information, as the founder of AgribusinessNG. To create awareness of the opportunities that lay bare for young Nigerians, the company organized a sensitization forum to empower 5000 youths with Agric funding and empowerment at the National Stadium, Surulere, Lagos. It was highlighted at the meeting that a fund of N22bn had been made available by the MasterCard Foundation in care of Sterling Bank for aspiring young farmers interested in agriculture and has laid fallow for almost 2 years, also pointing out that if the funds had been tapped, Nigeria would not be affected by the problems with regards to food scarcity and insecurity.

Analysts, however, feel this claim is half complete as more problems make such access to funds ineffective. Problems such as security which has driven farmers away from their homes and farms, and problems relating to extreme weather conditions such as drought and extreme flooding that have displaced many farmers and destroyed many crops, block the effectiveness of these funds even after they have been taken.

Egypt, the Host for COP27 Urges Countries to Provide a United Front Against Climate Change

In a press conference held by the COP27 presidency, Egyptian hosts urged leaders to set aside tensions over Ukraine. This is because several countries are at loggerheads over the abovementioned issue, dampening expectations for the annual climate summit. Additionally, the economic and political damage caused by skyrocketing energy prices has led both developed and developing countries largely abandon plans to advance their renewable energy sectors to deal with the instability. The hosts also call for a diplomatic standstill over Taiwan between the world's two biggest greenhouse gas emitters, the US and China. Analysts believe this is a necessary course of action for establishing a common front to combat the ever-increasing over-dependence on fossil fuels as it has adverse global consequences.

Securities Lending Forum Encourages Investors to Explore ETFs

At the just concluded Securities Lending Forum Webinar organized by Nigerian Exchange Traded Fund (ETF), investors were encouraged to pivot into ETFs, a type of investment fund and exchange-traded product that tracks the performance of an index or a "basket" of securities (such as shares, bonds, commodities, etc.) considering the bearish nature of the Equity market. ETFs offer a stable investment with settlement coverage, directional investing, liquidity management, and investment strategy deployment, with key benefits such as increased revenue, diversification, and investment returns for borrowers. Analysts emphasized the need to ensure thorough documentation because the securities are being loaned. As Nigeria's high inflation rate generates a negative return for most investments, diversifying the asset portfolio will help lessen the loss. 

Bond Market  to Continue to Hug Bears

With investors' attention to the ongoing FGN savings bond auction, multiple selloffs dominated the bond market yesterday. The selloffs were concentrated at the short tenor, especially the 2024 maturity, which extended the average benchmark yield to 13.88% from 13.66% recorded Friday. Analysts expect a further fall in prices of bonds as selloffs persist in the market, pending any catalyst to reverse investors' stance (see table 1 below). 

Table 1: FGN Bonds Market 

Elon Musk Takes U-Turn on the Twitter Deal.

Elon Musk has changed his mind about the takeover of Twitter; he is now willing to proceed with purchasing the social media platform. He agreed to buy at a price initially negotiated at $54.20 per share. The back-and-forth followed a sharp downturn in the value of technology stocks, including Tesla, the electric car company that Elon Musk leads and is the base of much of his fortune. Analysts believe this U-turn would be a win for Twitter shareholders because the value offered for the shares is still more than the nominal value of the shares.

Global Banks Report Crypto Exposure of 9.4bn Euros. 

According to a study published by the Basel Committee on Banking Supervision, the banking supervision reported that 19 out of 182 global banks reported ownership of digital assets, with their total exposure to crypto estimated to be 9.4bn euros. In context, the exposure represented 0.14% of the total risk-weighted assets of the 19 surveyed crypto banks, while the 182 banks represented 0.01% of their total risk-weighted assets. Out of the 19 banks surveyed, 10 were from the Americas, seven were from Europe, and two were from other parts of the world. To reduce the degree of exposure, the committee has tentatively recommended that banks limit their crypto exposure to 1% of their Tier 1 capital.

The cryptocurrency market extended its stellar week with a bullish trend for major cryptocurrencies. The extreme bullish wave for cryptocurrencies has prevailed on the relative strength index of the overbought region. Bitcoin formed a base above the US$19,800 level and began a steady rise above US$20257.44: increasing by +1.73% from US$19.850.70. Over the past 7 and 30 days, Bitcoin price has increased by +8.06% and +2.65%, respectively. Analysts noted that among the top 100 coins, GMX outperformed the market by +35.4%, rising from US$40.10 to US$54.72 (see chart 1 below).

Chart 1: GMX Price Movement