EQUITIES | FIXED INCOME | SECTOR OUTLOOK

2025 Outlook Theme: Economic Prospects Inspire Cautious Optimism

Nigeria's Equities and Fixed Income Outlook 2025

The Nigerian equities market achieved a historic milestone in 2024, with the Nigerian Exchange Group All Share Index (NGXASI) advancing by 37.56% year"‘on"‘year (y/y) to close at 102,926.40 points. This marked the fifth consecutive year of positive returns for the NGXASI, and the index surpassed the 100,000"‘point mark for the first time, despite navigating mixed investor sentiments driven by policy announcements and corporate action releases. The NGXASI outpaced global benchmarks in 2024, significantly surpassing the returns of the Emerging Market Index (+5.05% y/y) and the Developed Market Index (+17.00% y/y). Additionally, the market stood out as attractively valued, with a price"‘toearnings (P/E) ratio of 10.26x, compared to 13.73x for the Emerging Market Index and 22.02x for the Developed Market Index. Domestic investors played a critical role in the market's resilience, accounting for 84% of total transaction value as of November 2024. This strong local participation helped shield the market from external shocks and global financial contagions.

We maintain an optimistic outlook for 2025, driven by expectations of increased Foreign Portfolio Investment (FPI) participation, corporate actions, and potential new listings. We foresee reduced currency volatility and a mild devaluation, which could help mitigate foreign exchange losses, improve corporate profitability, and boost investor confidence, thereby attracting greater FPI inflows. Growth is anticipated across several key sectors. Federal infrastructure spending is expected to drive higher sales volumes for cement manufacturers, enhancing their profitability. The ongoing recapitalization of the banking sector is likely to stimulate market activity. Stabilization in the currency market is projected to further reduce foreign exchange losses, particularly benefiting large"‘cap companies in the telecom, industrial goods, and consumer goods sectors. Additionally, listed agricultural companies are well"‘positioned to capitalize on elevated commodity prices, while downstream oil marketers are expected to benefit from lower supply chain costs, supported by the Dangote Refinery's contribution to the domestic fuel supply.

We project a base"‘case scenario in which the NGX All"‘Share Index (NGXASI) grows by 31.14% year"‘onyear (y/y), reaching 134,976.43 points by the end of 2025. However, market valuations appear less attractive relative to regional peers, with the NGX trading at a price"‘to"‘earnings (P/E) ratio of 10.26x at the close of the previous year, compared to Ghana (5.11x), Kenya (5.32x), and Egypt (6.15x). Furthermore, the year"‘end 2024 30"‘day Relative Strength Index (RSI) of 71.79 indicates the market is in a slightly overbought position. Despite these concerns, we expect minimal Naira devaluation, continued improvement in macroeconomic indicators, and a gradual reduction in fixed income rates to sustain investor optimism. Limited alternative investment options are also likely to bolster market participation. However, risks to this outlook remain. Central Bank of Nigeria (CBN) policies could pressure banking sector profitability, while fluctuations in oil prices present a significant risk to currency stability. Despite these challenges, many stocks remain attractively valued. Within our coverage universe, we maintain a positive outlook on key investment opportunities, including Access Holdings, Zenith Bank, UBA, Guaranty Trust Holdings, Airtel, UACN, Unilever, Okomu Oil, WAPCO, and Dangote Cement.

In the fixed-income space, 2024 saw rising yields across the curve due to the CBN's tight monetary policy and the Federal government's aggressive domestic borrowing. To combat persistently high inflation, the CBN raised the Monetary Policy Rate (MPR) by 875 basis points, with interbank lending rates reaching record highs. Open Market Operations (OMO) further tightened liquidity, often pushing banks to rely on the CBN's discount window. Government borrowing in the domestic market exceeded 10.46 trillion, up from 5.49 trillion in 2023. Average yields rose by 14.09%, 6.98%, and 2.94% y/y across the short, mid, and long segments respectively. In 2025, global market dynamics could pose challenges, particularly with inflation in the United States expected to rise due to proposed tariffs under the incoming Trump administration. Emerging and Frontier Markets like Nigeria may need to maintain higher interest rates to attract FPIs. While domestic fixed income yields are expected to remain elevated, a moderation of 75 basis points at the long end and 150 basis points at the short end is anticipated as the year progresses.

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