Most of the analysts expressed mixed opinions in their outlook for foreign investment inflows in 2019. While they expected growth to remain positive for the year, they were, however, doubtful of the possibility of sustaining or exceeding the 114 percent growth recorded in the nine months to September 2018.
“A successful election should result in the continued growth of capital importation in 2019,” said Ayo Akinwunmi, Head of Research at FSDH Merchant Bank, adding that a rise in global yield would also play a major role. Also projecting, Asaolu of FBNQuest Capital said: “With the US still likely to see further interest rate rises, the slow GDP growth environment in Nigeria, while capital importation may still grow in 2019, that growth is more likely to be subdued.”
Gaimin Nonyane of Ecobank Group, on his part, noted that the geopolitical factors that undermined growth in H2’18 would constrain foreign investment inflows in 2019. He stated: “In 2019, we are unlikely to see a bullish market as was the case in 2017 despite CBN’s hawkish policy stance. “We expect foreign currency inflows to post modest growth. Our expectation of fewer US rate hikes should boost appetite for emerging market/financial market risk assets although some of the gains will be offset by rising political risk premium and expectation of continued geopolitical tensions.”
He also noted that headwinds from the volatile US-China trade relations and global market uncertainty, specifically in the global oil market and or a return to an aggressive US policy hike cycle may undermine growth in 2019. While noting that uncertainties surrounding the general election may constrain growth in the first half of 2019, Czatoryski of Coronation Merchant Bank was, however, upbeat about other factors which he believes would enhance growth during the year.
He explained, “The responses of our models on the base assumption of crude oil prices above $58 per barrel and a wane in investor confidence leading to full unwinding of positions by foreign investors is unlikely to spark a massive devaluation as we saw in 2015/2016.
That’s a positive for capital importation. “Also, the CBN is already lifting short-term interest rates close to 18 percent providing a spread which in our view is attractive to asset managers with emerging market portfolios. “Furthermore, the possibility of disinflation after the general elections makes a case for emerging market money managers to hold positions in risk free naira denominated assets over H1 2019. Falling yields would imply good returns.
“We must highlight the possibility that OPEC led efforts to stabilize crude prices above $60 per barrel may be unsuccessful to some degree. Brent is currently trading at sub-budgetary levels. This puts extra pressure on the revenue mobilization ability of the federal government in 2019 and brings deficit financing to the fore. “While the CBN might see some reason to moderate rates, funding the budget may require high yields to keep lenders happy. This suggests some level of support for capital importation irrespective of the outcome of the general elections.”
Projecting a similar positive outlook for growth in foreign investment inflow in 2019, Olisaeloka of Zedcrest Capital highlighted domestic and external factors that will aid or impede growth in the New Year. He said: “Given our expectations for a peaceful conduct of the 2019 elections, we anticipate a positive improvement to capital import statistics in Q2 to Q4 2019. We however remain wary of domestic policy mishaps, monetary/fiscal, and the Federal govt’s perceived aggression towards foreign businesses, MTN’s case in point.
“Other factors that pose downside risks to our outlook include higher interest rates in global markets and any significant downturn in global oil prices, which would fuel bearish sentiments in domestic financial assets.
“Global monetary conditions are gradually easing, with the US FED dot plot forecast pointing to a slower rate of hikes in 2019. We believe this could result in some FPI flows back into emerging and frontier markets like Nigeria from investors looking to invest in undervalued emerging market assets which were sold off this year in the wake of the aggressive rate hikes.”