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FSDH Securities recently released their Economic and Financial Outlook for 2011. You can download it below.

Here is an excerpt from the report on their outlook for 2011:

Outlook for 2011
Global Economy
The highlights of the consensus from the IMF, World Bank  and OPEC on the outlook of the world economy for 2011 are:
+ Looking at the world economic growth rate in 2011, IMF projects 4.5%, OPEC projects 3.9% while World Bank projects 3.3%. The  IMF’s projection is slightly lower than the estimated growth rate of 5% in 2010, but represents an upward revision from 4.25% released in the WEO, October 2010. IMF added that signs are increasing that private consumption  – which fell sharply during the crisis – is starting to gain in major advanced economies.
+  IMF however notes that downside risks to the recovery remain elevated. According to the Fund, the most urgent requirements  for robust recovery are comprehensive and rapid actions to overcome sovereign and financial troubles in the euro area and policies to redress fiscal imbalances and to repair and reform financial systems in advanced economies more generally. These need to be complemented with policies that keep overheating pressures in check and facilitate external rebalancing in key emerging economies.
+ IMF projects oil price around US$90/b in 2011.

The Nigerian Economy
The general elections into various political offices in Nigeria will commence with the National Assembly Elections on April 02, 2011. This will be followed by Presidential Elections on April 09, 2011 and lastly Government/State Assembly Elections on April 16, 2011. Although there are some securities issues around the country which the government has vowed to deal decisively with, we are of the opinion that with the success of the just concluded party primaries across the nation, the election will be void of crisis that can adversely affect the smooth running of the economy and the financial market.
+ There are renewed commitments from the Federal Government to privatize the Power Holding Company of Nigeria (PHCN) by June 2011. This is in line with FSDH Research recommendation. When actualized,  it is capable of thrusting the economy on a growth path never witnessed before.
+ We expect the FGN to adopt more Public Private Partnership (PPP) in its bid to improve the state of infrastructural facilities in the country.
+ We expect the current Sovereign Debt Note  (SDN) where the FGN guarantees the payment of the subsidy to oil importers to end toward  mid-year. This will also be in preparation for the deregulation of the sector.
+ The current high yields on government securities may serve as disincentive for the banks to lend to the real sector of the economy thus further crowding-out the private sector and driving up lending rates.
+ We expect the Bill establishing the Sovereign Wealth Fund (SWF) to be passed and signed into law. If this is established, we expect it to provide additional cushion for the economy and instill more discipline in political office holders in handling public finances. If the average oil price in 2011 stands at US$88/b,  we estimate a total of about US$13.75bn to be saved in the SWF given the production of 2.3m/b and a budget oil price of US$65/b in 2011.
+ Our forecast inflation rate range for 2011 is 12.50% -13.00%.
+ We expect that the FGN, after the general election will have the political will to implement the much desired full deregulation of the downstream sector of the oil and gas industry in Nigeria.
+ Forecast exchange rate for 2011 is the region of  N150.50/US$1-N152.50/US$1. The CBN has also approved forward trading on foreign exchange.
+ With the cleanup of the microfinance subsector of the financial industry, the sector is now well positioned to promote credit creation among the active poor, promoting synergy and mainstreaming of the informal sector in the national financial system and contributing to rural transformation.
+ Our forecast GDP Growth range for Nigeria in 2011 is  7%-8%.  We however believe that Nigeria has the capacity to achieve double digit GDP growth rate if the country has stable power supply, relevant transportation network and  with the proposed deregulation of the downstream sector of oil and gas.
+ External reserve: Our forecast figure to end 2011 is US$35.58bn.
+ Estimating the public debt position of the FGN both from the domestic and external markets from available data and forecast, we expect the domestic debt to increase to N5.11trn, while the external debt should increase to US$5.21bn.

Fixed Income Securities
Considering the interactions of several factors, the following factors may dominate activities in the money market in the next six months:
+ Liquidity tightness
+ Inter-bank rates to maintain upward trends in response to the tightness in the market.
+ We expect further drop in the prices of FGN Bonds in response to rising interest rates, yields and increase in the domestic borrowing of the Federal Government.
+ Treasury Bills may command higher discount rate.
+ Deposit rate may also inch up to attract deposits.
+ Increased activities in the state government bond market after April election, particularly for states where the incumbent governors win the April election. We expect a gradual slow down in the activities in the state government bonds and corporate bonds issuances to close the year.
+ Any new corporate bond will command high coupon rate given the current high yields on FGN Bonds in the market.

Equities Market
FSDH Research believes that the current improved regulatory oversight on the equities market will boost investors’ confidence both locally and internationally. In our view, the following factors will sustain the growth of the market in 2011.
+ Improvement in earnings of quoted companies;
+ Success of the general elections and smooth transition of power;
+ Stability in foreign  exchange rate and other macroeconomic factors;
+ Taking over of non-performing assets of banks by AMCON;
+ Sustained global economic recovery which  will keep oil price around current level  of US$90/b;
+ Signing into law the Petroleum industry Bills;
+ Deregulation of Downstream sector of oil and gas;
+ Adoption of PPP in improving the state of infrastructure in the country;
+ The resolution of the leadership crisis at the NSE;
+ Privatization of PHCN;
+ Commitment on the part of the Federal government to improve power generation and relevant transportation (road and rail).

However the downside risks to the growth of the NSE in 2011 are as follows:
+ Election crisis;
+ The wave of insecurity in the some parts of the country  which may scare foreign investors;
+ Rising yields and rates on fixed income securities;
+ Tightening policy thrust of the MPC;
+ Rising prices of  food and other intermediate raw material in the international market which may reduce the margins of  the companies that rely on them;
+ Delay in AMCON taking over the non-performing assets of banks which may make investors lose confidence in the whole process;
+ Possibility of bubble capital from the  Foreign Portfolio Investment(FPI);
+ The possible adverse impact of the  euro area crisis on the domestic financial market.

We are of the opinion that these factors are to a large extent subdued and the factors in favour of the economy and the financial market outweigh these risks. We are therefore inclined to release a forecast growth rate of 17.42% for the NSE ASI in 2011. Given this growth rate, we expect the NSE ASI to close the year in the region of 29,085.96 points.

FSDH - Economic And Financial Outlook For 2011 (639)