The double whammy of unpredictable trade relations and geopolitical tensions, particularly in the Middle East, is likely to catapult portfolio contingencies such as inflation and growth to the front burner in H2'25. This view is validated by the World Bank's recent revision of its global inflation forecast to 2.9% (up from 2.7%) and its adjustment of the related growth projection to 2.3% —the slowest non-recessionary pace in 17 years. The former increases the likelihood of higher-for-longer yields that may keep valuations in sensitive sectors suppressed, while the latter reinforces the potential trade-off impact on growth.
Amidst this sensitive global macro environment, an appropriate asset allocation strategy should balance resilience to global volatilities with the ability to capitalise on Nigeria's domestic growth drivers, internal yield dynamics, and equity re-rating potential. Notably, while the World Bank downgraded growth forecasts for over 60.0% of its coverage countries, it raised its outlook for Nigeria, highlighting a relatively strong macro pulse supported by improved oil production, reform momentum, and an easing inflation trend. Consequently, we have revised our portfolio split to a 70:30 allocation in favour of local assets versus global assets, up from 65:35 previously.
Within the global sleeve, we retain our low exposure to equities to account for lingering uncertainties and relative overvaluation across some major indices. We have also increased our allocation to global real assets and alternatives to 7.0% (from 5.0% previously), financed by reducing cash holdings from 5.0% to 3.0%. This positioning reflects our preference for inflation- resilient exposures, tangible assets, and uncorrelated return streams during periods of volatility and policy divergence.
In the local bucket, we have raised our exposure to fixed -income instruments to 30.0% (from 25.0% previously), financed by the 5ppts reduction in global allocation. This decision was supported by moderating yields and expected rate cuts principally driven by falling inflation and stable exchange rates.
