Onome Amuge
Johnson Chukwu, CEO, Cowry Asset Management Ltd.
Nigeria’s foreign exchange market improved in 2024, driven by an uptick in foreign portfolio inflows, federal government foreign currency borrowing, and increased remittance inflows, resulting in the country’s foreign reserves surpassing the $40 billion mark. Despite the encouraging developments in 2024, Cowry Asset Management Limited, predicted a persistent volatility in the exchange rate in 2025.
The forecast was underpinned by factors such as an anticipated increase in demand from Foreign Portfolio Investors whose investments in Nigeria’s market will mature during the year, as well as a limited net FX position and a potential uptick in imports.
The investment firm, in its recent report,titled “Nigeria’s Macroeconomic and Sectorial Outlook in 2025: Looking Beyond the Rhetorics,” offered a comprehensive analysis of the country’s economic trajectory for the year 2025.
The report, presented by Johnson Chukwu, the firm’s CEO, discussed crucial trends and projections that are expected to shape Nigeria’s economic and sectorial landscape, with particular emphasis on the potential challenges and opportunities ahead.
Building on its projections, Cowry Asset projected that the naira would likely trade within a range of N1,400 to N1,900 against the dollar in 2025, based on the assumption that the market would remain relatively undisturbed.
The report, which underscored the critical role of the oil sector and regional security in supporting currency stability, asserted that Nigeria’s ability to increase crude oil production and mitigate insecurity in the Northern regions would be vital in maintaining a more stable exchange rate.
Addressing monetary policy, Cowry Asset’s report predicted that the Central Bank of Nigeria (CBN) would likely retain a hawkish stance in 2025, in a bid to contain inflationary pressures and volatility in the foreign exchange market.
The firm, however, noted that to ease liquidity constraints in the banking sector and incentivise lending, the CBN may consider lowering the Cash Reserve Ratio from the current 50 percent level. This potential reduction could release funds back into the banking system, allowing financial institutions to extend credit facilities to borrowers
“We recommend a cautious approach to CBN as it navigates the new global financial order that will be triggered by the Donald Trump administration. There is also the need for a fine balance between price stability and economic growth,” the investment firrm advised.
Analysing the Nigerian equities market for 2025, Cowry Asset Management noted that despite investors’ concerns over valuation and interest rate increases, the market has proven to be remarkably resilient, maintaining its positive trajectory.
According to the report, this upward trend is expected to continue at the start of 2025, driven by investors seeking to capitalise on positive results and dividend declarations from corporate entities, particularly in the banking sector.
Cowry Asset Management identified three primary factors that are expected to shape the trajectory of the Nigerian equities market in 2025. These include:
-Trajectory of economic growth,
-Direction of monetary policy and impact on fixed income yields, and
-Corporate earnings performances.
Based on the solid nine-month financial performance and interim dividend payouts displayed by several listed firms, particularly in the banking, oil and gas, insurance, and agriculture sectors, Cowry Asset Management projected that equity prices would maintain a relatively stable level in the early part of 2025.
The report added that investors would likely seek to capitalize on dividend declarations for the fiscal year 2024, positioning their portfolios to maximise these earnings.
Cowry Asset Management’s report acknowledged the potential impact of exchange rate fluctuations on corporate earnings but projected that medium-to-high-cap stocks would still exhibit strong performance. The anticipated listing of the Dangote Refinery and other potential new listings were identified as critical developments that could boost investor sentiment and contribute to positive market performance.
The Local Bonds Market
Cowry Asset Management emphasised the impact of the CBN’s monetary policy direction and the trajectory of inflation on the bond market’s performance in 2025.
The report suggested that interest rates would likely remain high throughout the year (2025), reflecting the CBN’s commitment to combating persistent inflationary pressures.
Key factors likely to influence the local bond market include:
1.Rising Stop Rates: Auction stop rates are anticipated to trend higher, bolstering bullish investor sentiment and attracting participation in government debt instruments.
2.Monetary Policy Direction: The market will closely track the CBN’s policy trajectory, particularly as inflation trends remain a central concern.
Local Currency Dynamics: Continued naira depreciation could pressure yields, as investors demand higher returns to compensate for currency risks.
Eurobond Market
Analysing the Eurobond market, Cowry Asset Management highlighted the dominant role of global inflation dynamics and shifts in monetary policy in advanced economies, serving as key drivers of market sentiment.
The firm observed that the Nigerian government’s efforts to address fiscal challenges, such as balancing public spending and managing debt levels, as well as measures to enhance foreign exchange liquidity, would be closely watched by investors, with their reactions influencing the overall market outlook.
