Financial Market Update

The best performing sector over the month was the banking sector (+4.29%) while the worst performing sector was the oil and gas sector (-15.71%).

We expect the equity market to trade sideways in the near term in the absence of any positive catalyst however we would continue to take advantage of market opportunities to the enhance the value of the pension assets.

Fixed Income 

The fixed income market traded on a bullish note with yields declining across the curve during the month of June. The bullish sentiment was largely supported by the buoyant system liquidity and the reduction in the monetary policy rate from 13.5% to 12.5%.
We expect yields to continue on a downward trajectory largely due to the healthy demand from local investors for federal government securities.

Nigeria Strategy Report (H2 2020 Excerpts) – Crude Oil – Cast in COVID-19 Shadows

In what would seem like ages ago, we had started the year with some optimism for oil markets, following the resolution of the 2-year US-China trade war, with an oil price forecast of $63/bbl. for FY 2020. However, in an unprecedented move, global economic activities were grounded to a halt and country borders were shut; all due to the outbreak of the coronavirus. However, prior to the full-scale impact of the pandemic, a rift between the OPEC+ de facto leaders – Saudi Arabia and Russia – caused a price war wherein the leading suppliers ramped up production in a bid to recover lost market share. A sum of the foregoing factors led to a historic glut in the oil market and a crash in brent oil prices to a two-decade low of $19.33/bbl., while WTI confounded known theories to touch negative territory with a trough of -$34/bbl – both in April. Over H1 20, oil prices was down 37% to $41/bbl in June, with average oil price printing at $42/bbl over H1 20, compared to $62/bbl over H2 19.

For the rest of 2020, our forecast points to likelihood of a net deficit in market balance. With demand expected to print at an average of 95.9mbpd and supply at 92.7mbpd, the oil market could be in a net deficit position of 3.2mbpd over H2 20 from a net surplus of 7.6mbpd in H1. That said, while we could see some recovery in prices, we think it is unlikely prices return to the highs of $60-70 levels as it did at the start of the year. Thus, we project oil prices could print at an average of $40 over H2 20 and we leave our FY 20 oil price forecast unchanged from our last update of $40.5. Overall, we project oil prices could print within a range of $33-$42 for FY 20, with our base case printing at $40.5. That said, the threat of a second wave of the pandemic is a key downside risk to our forecast.