Q2 2024: MACROECONOMIC AND FINANCIAL MARKET REVIEW

DOMESTIC MACROECONOMIC REVIEW

To start with, In Q2 2024, The National Bureau of Statistics (NBS) reported that the economy expanded by 2.98% YoY in the quarter, representing slower growth compared to Q4:2023 (+3.46% YoY). Notably, the Nigerian economy, amid several macroeconomic and structural issues, has consistently remained on the path of growth for fourteen (14) consecutive quarters, since Q2:2020. Growth in Q1:2024 was fuelled by similar expansion in the oil (+5.70% YoY in Q1:2024 vs.+12.11% YoY in Q4:2023) and non-oil (+2.80% YoY in Q1:2024 vs. +3.07% YoY in Q4:2023) sectors. The moderated pace of growth in the sectoral performance canbe attributed to inflationary pressures, exchange rate depreciation, high interest rates and continued oil theft, among other challenges that occurred during the quarter.

Shifting focus from GDP, Nigeria's inflation maintained its upward trajectory in May 2024; however, the increase was modest, with headline inflation rising by 0.26% to 33.95% from 33.69% in April 2024. On a month-on-month basis, headline inflation also eased to 2.14% in May 2024 from 2.29% in April 2024. This latest inflation figure marks the fifth consecutive increase in inflation in 2024. Further out, food inflation rose by 13bps to 40.66% y/y (April: +40.53% y/y), while core inflation increased by 20bps to 27.04% y/y (April: +26.84% y/y). Interestingly, month-on-month inflation slowed for the third consecutive month by 15bps to 2.14% (April:+2.29% m/m) as lower naira volatility, off-season harvests and reduced energy prices primarily supported a slower pace of inflation.

GLOBALMACROECONOMIC REVIEW

Geopolitical Landscape: The second quarter of 2024 saw a continuation of global uncertainties,with ongoing Middle Eastern tensions remaining a primary concern. Elections in India and South Africa resulted in incumbent victories, albeit with diminished political mandates.

Economic Developments:

• Europe: Declining inflation trends prompted interest rate cuts.
• United States: The Federal Reserve maintained steady policy rates.
• Global Outlook: The International Monetary Fund (IMF) retained its 3.2% global growth forecast for 2024 in its April World Economic Outlook report. The IMF assessed global risks as balanced compared to the previous year, while emphasizing the necessity for     continued monetary tightening to achieve target inflation levels.

Equity Markets: Global equities experienced volatility throughout Q2 2024:

• Early quarter: Inflationary concerns led to a decline in stock prices, particularly in April.
• Late quarter: Positive economic indicators and strong earnings from major US technology companies boosted investor confidence, driving a rally in large-cap tech stocks.
• Overall performance: The MSCI World Index gained 2.15% for the quarter (YTD: 11.1%).

Bond Markets: Fixed income markets remained largely flat:

• The US Federal Reserve's cautious stance on interest rate cuts, in response to persistent inflation, contributed to bearish trends across global bond markets.
• The S&P Global Bond Index declined 0.6% for the quarter (YTD: -1.2%).

FINANCIAL MARKET REVIEW

In the secondquarter, The Monetary Policy Committee (MPC) convened for its third meeting ofthe year, resulting in a 150bps increase in the Monetary Policy Rate (MPR) to26.25%. This marks the third consecutive rate hike, reflecting the Committee'scommitment to addressing persistent inflationary pressures. The decision cameafter deliberations on whether to further tighten monetary policy or maintaincurrent rates to evaluate the impact of previous increases. The Committee'schoice to tighten was primarily influenced by the near-term inflation outlookand the need to consolidate gains from prior rate adjustments. Other key policyparameters remained unchanged, including the asymmetric corridor around the MPR(+100bps/-300bps), the Cash Reserve Requirement (CRR) for Deposit Money Banks(45.0%), and the liquidity ratio (30.0%).

Equities Market: The equity market concluded the second quarter with a 4.3% decline, settling at 100,057.49 points, moderating the year-to-date (YTD) gain to 33.81%. Sector performance was predominantly negative, with the notable exception of Oil & Gas, which recorded an 11.2%gain. This increase was primarily driven by a 13% rise in Seplat's stock, as the indigenous producer nears completion of its acquisition of ExxonMobil's onshore business.

Other sectors experienced declines:

ConsumerGoods: -1.8%

Insurance:-3.8%

Industrial:-3%

Banking:-19.4%

The broader market trend was reflected in both the NGX Pension Index and NGX Lotus Halal Index, which closed the quarter down4.4% and 0.8%, respectively.

Fixed Income: Interest rates along the Nigerian yield curve exhibited mixed performance during Q2 2024. Short-term rates surged by 190 basis points due to the Central Bank of Nigeria's (CBN) liquidity tightening measures. This followed a 150-basis point hike in the Monetary Policy Rate (MPR) to a record 26.25% at the May MPC meeting. The CBN's aggressive stance was evident in the sale of NGN2.9 trillion worth of Open Market Operations (OMO) bills, with the 364-day stop rate reaching 22.48% (effective yield:28.95%). Concurrently, the Federal Government intensified borrowing, issuing NGN2.85 trillion in Nigerian Treasury Bills (NTBs) against maturities of NGN1.47 trillion. Average NTB stop rates climbed by 323 basis points to 18.08%, with the one-year bill closing at 20.68% (effective yield: 26.03%). At the long end, the Debt Management Office (DMO) sold NGN1.23 trillion in bonds. However, yields retreated from peak levels observed in Q1 2024, resulting in compressionacross off-the-run securities. This yield decline contributed to an 8.2%increase in the FMDQ S&P Nigeria Bond Index for the quarter (YTD: -3.9%).

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Q2-2024 INVESTMENTRETURNS AND ASSET ALLOCATION

Despite the activities seen in fixed income and the domestic equity markets during the second quarter of 2024, our RSA portfolios achieved favorable results throughout the period.

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