Tinubu Pledges to Cut Inflation to 15% by the end of 2025 in New Year Address
Investment Research Weekly Market Commentary | Jan 6, 2025
Welcome to this week’s edition of our stock market newsletter!
Green White Green Recap
Macro Update
Tinubu Pledges to Cut Inflation to 15% by the end of 2025 in New Year Address
President Bola Tinubu has reaffirmed his administration's commitment to reducing Nigeria's inflation rate from 34.6% to 15% by the end of 2025. In his New Year message, he outlined strategies to achieve this goal, including boosting food production and promoting local manufacturing of essential goods.
Key takeaways:
Reaching the 15% inflation target by the end of 2025 will be challenging unless key issues such as supply chain disruptions and rising production costs are effectively addressed.
External factors, including global commodity prices, exchange rate fluctuations, and international interest rates, also significantly impact inflation targets.
FX Update:
Exchange Rate Ends 2024 at N1,535/$1, Marking a 40.9% Depreciation
The exchange rate between the naira and the dollar ended the year at N1,535/$1 representing a 40.9% depreciation for 2024.
Summary: Last Year of Forex Policies
In 2024, the Central Bank of Nigeria (CBN) implemented numerous measures to address forex challenges and stabilise the naira. Cardoso, the CBN governor, advocated for genuine price discovery, leading to significant reforms:
Early 2024: CBN clamped down on forex speculation and discontinued the ±2.5% cap on interbank FX transactions, signalling a move towards a free-floating exchange rate.
March: Major actions included fining Binance $10 billion for forex violations, revoking 4,173 BDC licenses, and achieving the naira's strongest performance in five years.
Mid-year: CBN introduced stricter BDC guidelines, raised capital requirements, and launched remittance and bond initiatives to improve liquidity. Despite these, the naira continued to depreciate, hitting N1,611/$1 by July.
November: A nine-month window was opened for undisclosed forex deposits, alongside new FX trading rules and a matching system to address valuation issues.
December: CBN revamped forex market rules, allowing BDCs to purchase up to $25,000 weekly.
Despite these efforts, the naira remained one of Sub-Saharan Africa's weakest currencies, highlighting persistent forex challenges.
Meanwhile, external reserves went up by 0.07% from $40.85 billion recorded in the previous week to $40.88 billion.
Key takeaway:
Long-term investors should look past the volatility in the currency and focus on consistently investing regardless of the exchange rate level.
Remember to save dollar-based goals in dollars, which can be done with apps like Ladda.
Equities Update:
The Nigeria Exchange (NGX) All-Share Index (ASI) ended the week with a week-to-date gain of 1.42%, pushing its year-to-date returns to an impressive +0.64% in naira terms
Sector Highlights (Week-on-Week):
Performance across sectors was mixed.
The Industrial Goods sector made a gain of 0.50%.
The Consumer Goods sector topped with 2.16%, and the Banking sector gained 0.58% .
Conversely, the Oil and Gas sector made a loss of 0.45%
Key takeaways:
Long-term investors may benefit from US exposure, particularly the S&P 500, which delivered 25% in 2024.
Until Nigeria’s macroeconomic conditions stabilise, diversifying into US markets makes sense.
Fixed Income Update:
Mixed Trends in Treasury Bills
Here’s what’s happening with treasury bills and bonds:
Short-Term Treasury Bills:
The 91-day treasury bill yield went down from 26.24% to 25.75%.
The 182-day treasury bill yield went up to 25.18% from 24.95%.
364-day Treasury Bills are on the Rise:
The 365-day treasury bill yield went up to 27.22% from 26.49%.
Bond yields climbed to an average of 19.19% from 19.16%.
Key takeaways:
Treasury bill yields remain high, a good option for short-term savings goals.
You can invest in treasury bills to save for your short-term goal on rent, schools, fees, etc. through Ladda, a fintech app that helps you save at high returns.
For your long-term goals, we do not recommend naira treasury bills and bonds.
Star-Spangled Banner Recap
S&P 500 and Global Indices Face Declines Amid Rising Yields
The S&P 500 ended the week with a 0.48% decline. Despite this, it has delivered a year-to-date return of 1.03%. The downturn may be attributed to profit-taking, tax-related selling, and a rise in the US 10-year treasury yield, which reached 4.641%, its highest level since May 2, 2024. This trend mirrors declines in other markets, with the FTSE 100 slipping by 0.44% and the MSCI World Index, a broad measure of global equities, falling by approximately 1.55%.
Key takeaway:
Despite the uncertainty, and a shift in investor sentiment the S&P 500 gained 25% in 2024, reflecting the strong US economy. The US equities market offers a strong diversification option for investors.
Remember to always save for your dollar goals in dollars. You can do this with us on Ladda—a fintech app that helps you save at high returns.
We hope you find this edition insightful, and as always, stay focused on your financial goals!
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