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The Nigerian entered a second recession in less than five years as third quarter GDP real growth contracted by 3.62%. Inflation rate at the end of October was 14.23% setting up the Nigerian economy for a double dose of a recession and stagflation.  

With the current state of the economy, focus is once again on the investment outlook for the rest of the year and 2021.

Nigerian equities gained 2.19% at the end of the week, stock defied a gloomy economic outlook to close strongly. 27 stocks gained during the week compared to 21 the week before, while 42 lost grounds compared to 55 the week before as well.

For Stock Select Newsletter, most of our stocks lost ground due to profit-taking and lack of significant value. The stock market is also quite shallow with very few stocks to pick from. This is a challenge for investors looking for a market that could produce a constant stream of winners.

The economy in focus, Nigeria’s major driver for the GDP contraction was the oil sector which contracted by 13.89% in Q3 2020 compared to 6.63% contraction in the prior quarter.

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The Buhari administration is taking Nigerians through the arduous task of refocusing the economy on local production rather than imports. Whilst this is good in the long term, it is a painful route that will string along with it, higher inflation, increased poverty levels, and frustrate foreign investments.

According to data from Nairalytics, the NSE 30 companies have posted a combined pre-tax profit of N1.3 trillion which when annualized comes to about N1.7 trillion. When compared to 2019 and 2018, N1.8 trillion and N1.79 trillion respectively, it is obvious that stocks will fare slightly worse than last year.

Stagflation is the combination of inflation and tepid GDP growth rate and its implications on stocks has to take note of other factors. Dividend yields for some stocks still rank far above inflation rate and even higher than Core-inflation (less the more volatile food inflation). So long as the stocks we own are profitable, there is some buffer to withstand the effect of the stagflation


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The Economic Outlook of the year 2021 will be shaped largely by insecurity and social media. The spate of kidnappings, terrorist-related killings and fear of increased militant activities is a big concern for the Nigerian economy. While policies like capital control, border closure remain a drag on economic recovery, they are within the control of the government and at least can be adjusted as data continues to guide.

Disclaimer

There is a wealth of information that should help decide whether you should buy a stock or not and how long you can hold on to it. Our recommendation is based on the information we currently have and is wholly the opinion of Ugodre Obi-Chukwu.

Nairametrics does not own some of the stocks recommended and may not purchase them despite including them in our Stock Select Portfolio. Ugodre does not also own all the stocks he recommends.

This newsletter is an investment guide and as such you should conduct extra analysis before deciding whether to buy, sell or hold a stock. The decision to buy, sell or hold a stock is solely yours.

 

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