Equity:
For equities, we anticipate that a mix of disappointing economic numbers, weakening foreign exchange position and lukewarm earnings performance will weigh on investor sentiments. As such, we will continue to invest in stocks with strong fundamentals, as we seek to preserve the value of your assets.”
Fixed Income Yields:
The fixed income market continued trending on a bullish note as yields declined further in the month of July. In all, average fixed income yields declined by c.101ppts across the curve, supported by buoyant system liquidity. In all, we expect yields to remain low given the significant maturities expected over the second half of the year.
Oil Prices:
Brent gained +5.22% and closed at $40.30/b in the month of July supported by positive economic sentiments across the U.S. and the Eurozone. However, recent deterioration in U.S. and China relations is a cause of concern given the fragile state of the global economy due to the effects of Covid-19. With downside risks remaining significant, we expect oil prices to remain range bound around the $40 levels through August.
Inflation:
The headline rate of inflation for the month of June inched higher by 16bps to 12.56% YoY (May: 12.40% YoY). The increase was largely driven by a spike in food inflation, which rose by 14bps and resulted from the feedthrough effect of rising transportation costs.
Core inflation on the other hand, was relatively flat – up by 1bps, largely due to lower energy prices. Looking ahead, we expect rising inflationary pressures to persist in the near term.
Currency:
Over the month, external reserves declined (-0.8%) to close at US$35.9bn as at the 28th of July 2020. Whilst the federal government still expects some concessionary funding over H2 (World Bank and AFDB), we believe pressures on the reserve will remain, as the government continues to grapple with the impact of Covid-19 on its revenue. rm.
For the coming month, we still expect yields in the fixed income market to be driven by the level of system liquidity. For equities, we anticipate that a mix of disappointing economic numbers, weakening foreign exchange position and lukewarm earnings performance will weigh on investor sentiments. As such, we will continue to invest your pension assets in safe instruments, as we seek to preserve the value of your assets.
