FSDH Securities recently released their 2009 outlook. I must commend them for a well written analysis of the economy. You can download it here:

Their recommendation is:

While we advise investors to take medium to long term positions in the market, we observe that there are opportunities for short-term trading in the market. In a period like this; full of uncertainties, we strongly advise investors in the capital market to invest only in stocks of companies with sound management and good products that can generate and sustain its cashflows. Such companies can increase investments in the long run. Once recovery starts and the level of confidence in the economy improves, both domestic and international, stocks may not trade at the current prices for many years to come.

The highlights of the document are:

The Nigerian Economy
1. The current global economic and financial crises have serious implications on the performance of the Nigerian economy in 2009 since the Nigerian economy is heavily dependent on crude oil revenue.
2. A huge drop in federally collectible revenue leading to a huge drop in the amount of money to be shared by the 3 tiers of government.
3. The projected drop in the price of oil and other commodities will have a negative impact on the current account position of the country.
4. The FGN is expected to run a budget deficit of over 5% in GDP (current price) higher than the government‘s projection of 3.95% of the GDP.
5. The gross domestic debt is expected to increase by about 35% to N3,132bn from N2,320bn as at December, 2008. This increase will come from the issuance of medium to long term FGN bonds. This will have the effect of crowding out the private sector of the economy.
6. The devaluation move of the CBN, supply bottleneck in the country caused by deficiencies in infrastructure especially transport network, power and high propensity to import, will continue to leave inflation rate at double digit. The range of inflation rate in 2009 is expected to be between 12.5%-14.5% year-on –year.
7. The proposed deregulation of the down stream sector of the oil and gas industry should lead to a lower pricing regime for the petroleum products in the country. This is because of the competition that will set in and the drop in the price of oil at the international market.
8. Prime lending rates in the economy may remain very high as a result of the FGN‘s large fiscal budget deficit in 2009 with its attendant effect of crowding out the private sector.
9. A further depreciation of the Naira to the range of between N150 and N165 to the Dollar in the official market is expected as a result of the massive sell off of financial assets towards the end of 2008.
10. A GDP growth rate of between 4%-5% is possible if the current economic management team can put in place strong economic framework that can support the agriculture and the manufacturing sector especially in the areas of improving infrastructure and access to cheap funds.

Fixed Income Securities
1. The CBN is expected to continue the expansionary monetary policies to increase fluidity in the nation‘s financial market. The combination of uniform end of financial year for banks, and the budget deficit of the FGN in 2009 will drive up interest rate.
2. A cursory look at the FGN Bond issuance calendar for the Q1, 2009 shows that most of the bonds that will be issued in 2009 will be re-opening. Meanwhile, the expected high interest rate will cause the bond prices to drop and lead to an increase in the bond yield in 2009.
3. For liquidity management purposes, the CBN will continue to issue Nigeria Treasury Bills (NTBs) at low discount rates. In view of this, the discount rates on Nigerian Treasury Bills are not an appropriate measure to gauge interest rate in Nigeria.
4. Continued volatility in the inter-bank rates during the year as well as the interest rates trending upwards.

Equities Markets
1. Coordinated fiscal and monetary policies directed at improving the financial and economic health of the nation will set the tone for a real recovery in the equities market. They are confident that the current economic management team will recommend policies that will lay a solid foundation for the economy.
2. While most the stocks quoted on the NSE appear undervalued in terms of current and forecast earnings; based on historical performance, the one year forward attractiveness of these stocks depend on the performance of the macro and global economy.
3. Corporate earnings of companies quoted on the floor of the NSE will decline  in 2009, as a result of high cost of funds, exchange rate losses, and increasing provision for non-performing assets; especially for financial institutions.
4. High interest rates in the money market especially for tenored funds are expected to impact negatively on the equities market especially in the area of low liquidity for trading in equities as funds may likely move to the money market for the high interest rates.