Meristem: Naira depreciation poses risks to 2024 recovery

Analysts at Meristem Research are optimistic about the rebound in business activities expected in 2024 as the impact of economic reforms lessens. However, concerns about the downside risk of Naira depreciation still linger, posing challenges for the outlook. Praise Ihansekhien, Team Lead at Meristem Research, recently joined CNBC Africa to discuss and unpack the outlook for the year 2024. Ihansekhien highlighted the dynamic nature of the macroeconomic environment expected in 2024, emphasizing the recovery of business activities from the effects of reforms implemented in the previous year. One major concern for investors, both domestic and foreign, is the forecasted further depreciation of the Naira in 2024. Despite this, investors are strategizing and positioning themselves to capitalize on potential market gains. Strategies such as increased participation in the equities market and fixed income investments are expected to be utilized to navigate and mitigate risks in the market. The analyst pointed out that various factors, including inflation, monetary policy, and FX outlook, will influence investor decisions in 2024. Ihansekhien also delved into sectoral sensitivity to economic reforms, noting the banking sector's increased investor interest in the aftermath of significant events from the previous year. Reforms such as the removal of fuel subsidies and the recapitalization news have boosted activities and interest in sectors like banking, oil and gas, consumer goods. 2024 has seen continued investor enthusiasm in these sectors, with banking stocks experiencing significant price hikes. The elevated interest in banking stocks has led to record-high prices, marking this period as an intriguing phase for analysts and market observers alike. Additionally, the interview touched on the outlook for the fixed income market and Eurobond instruments. Ihansekhien anticipated potential volatility in fixed income markets following an expected 200 basis points rate hike, emphasizing the importance of elevated fixed income yields in attracting foreign investors. Regarding Eurobond instruments, Meristem Research remains optimistic, with a selective approach to recommending specific instruments and countries within the Sub-Saharan African region. The analyst highlighted the protective measures in place to safeguard Nigerian Eurobonds from default, coupled with the absence of Eurobond payments for the year. The positive outlook for Nigerian Eurobond instruments is bolstered by the expectation of economic rebound by 2025. As the market eagerly anticipates the Q1 bond calendar for 2024, analysts like Ihansekhien continue to assess and provide insights into the evolving economic landscape in Nigeria.