Saturday, August 24, 2019 08:00 AM / Proshare Content
Nigeria: Economic Dashboard @240819
Source: Afrinvest Weekly Update-August 23, 2019
The 'Next Level' Cabinet: Once Bitten, Never Shy
President Muhammadu Buhari finally inaugurated his cabinet and assigned portfolios to the 43 appointed ministers this week, six months post-elections and almost three months into his second term. Considering that it took President Buhari almost six months to form a cabinet in his first coming, this could be considered an improvement. However, historical evidence suggests that we do not consider this to be a positive signal as the administration's arsenal resists speedy response to pressing issues. In our assessment, competence also seems like an afterthought in choosing the cabinet, considering that majority of the ministers were former politicians without impressive track record of execution, nor the skill required to deliver much needed reforms. In our reaction to President Buhari's victory at the polls, we expressed concerns that urgent reforms may be delayed till 2023. With the new cabinet, our initial view is unchanged as we see few reasons for optimism.
Mergers and New Portfolios
We observe that 14 returning ministers retained their past portfolios while the structure of some ministries have changed. But like investors, we see value in continuity and stability only when there is confidence in existing approaches and policies. We are somewhat excited about the merger of the ministries of finance and budget & national planning, which should improve coherence in policies. We are slightly optimistic that budget forecast may now better align with revenue realities, but we would not hold our breath. Similarly, the unbundling of power from works and housing means that there should be less distractions. However, the decision to select a new minister for power rather than continue with Babatunde Fashola who now leads the works and housing ministry could lead to setback in one of Nigeria's most troubled yet vital sectors. The new ministries created include the ministry of police affairs as well as the ministry of humanitarian affairs and disaster management.
Another Doubtful Dawn in Key Ministries
In the oil and gas industry where progress has been negligible for decades, President Buhari retained the position of minister of petroleum resources. In our opinion, the President lacks the agility and the skillset to transform the sector based on his performance in the same position for the past two years, hence momentum in the sector is expected to remain weak. We expect slow progress towards passing and implementing the reforms need to attract investment into the industry.
In the ministry of finance, budget and national planning, the re-appointment of Zainab Ahmed provides clarity on the direction of fiscal policies. Accordingly, we expect a sustained drive to boost tax collection to narrow the FG's widening fiscal deficit. But as we do not expect strong improvements in the short-term, we expect continued funding of deficits in the cheaper Eurobond market. The easy monetary policy in advanced markets makes this strategy even more compelling in the near term, but we note that currency risk lurks. In our view, this ministry remains one to watch as the FG's fiscal challenges would partially dictate the pace of improvement in the economy. The concern is whether the FG would take necessary actions such as reining in spending and removing subsidies to free up more resources. In this regard, adopting the strategies employed during the first term of President Buhari would yield little progress.
In the works & housing and transport ministries, ministers Babatunde Fashola and Rotimi Amaechi, in that order, retained their jobs. As such, we are optimistic of the continuity of current priority projects and faster completion times. The key risk for these ministries is that capital releases may fall short of budget allocation as capital spending becomes increasingly discretionary in the face of weak revenue mobilisation and increasing recurrent expenditure.
The ministry for industry, trade and investment is another important ministry under our watch. Foreign Direct Investment (FDI) into the country has dipped consistently from the peak of US$8.9bn in 2011 to US$2.0bn in 2018. Relative to the size of the economy, FDI has deteriorated from the peak of 3.2% in 2009 to 0.5% in 2018. There is a need to sustain business environment reforms, loosen regulations and promote liberalization of sectors to encourage the investment needed to boost growth significantly. We only saw progress in business environment reforms in the past four years, but regulation became tighter and the FG consolidated its hold on important sectors such as power and oil & gas.
Global Equities Market: Bullish Performance in Global Markets Ahead of Powell's Speech
The United States (US) granted another 90-day reprieve to Huawei this week, allowing trade in specific items with US firms. Considering that the restrictions are likely to resume after the grace period expires, this does not represent softening trade tensions. The US continues to see Huawei - a major telecommunications infrastructure provider - as a threat to national and global security. In the financial market, investors would be searching for further clues on the direction of monetary policy during the US Federal Reserve Chairman, Jerome Powellâ€™s speech at Jackson Hole Economic Policy Symposium.
In the developed markets, there was a strong performance as all indices under our coverage advanced W-o-W. The S&P 500 and NASDAQ in the US gained 0.6% and 0.5% respectively in the absence of fresh shocks regarding trade policy. Similarly in Europe, France's CAC, Germany's XETRA DAX and UK's FTSE All Share indices inched up 1.6%, 1.5% and 0.8% respectively as investors reacted positively to the increasing prospect of monetary and fiscal stimulus which would support the economy. Hong Kong's Hang Seng and Japan's Nikkei 225 also ended the week in the green, appreciating 1.7% and 1.4% W-o-W respectively following lesser disruptions to economic activities due to protests about the extradition bill in the former country.
Performance in the BRICS markets was slightly bullish as 3 of the 5 indices we tracked ended in the green W-o-W. India's BSE Sens and Russia's RTS indices were down 1.7% and 0.7% respectively W-o-W against the backdrop of souring investor sentiment following lesser than expected support to the economy. However, China's Shanghai Composite index moved northward by 2.6%. Similarly, Brazil's Ibovespa and South Africa's FTSE/JSE indices ended bullish, up 0.2% and 1bp W-o-W respectively.
All but 2 indices under our coverage in the African market ended in the bearish region W-o-W. Nigeria's ASI advanced 3.2% due to buying interest in bellwether stocks while Egypt's EGX 30 rose 0.3% W-o-W following a rate cut in the country. Conversely, Ghana's GSE Composite and Kenya's NSE 20 indices extended losses, shedding 3.1% and 2.5% W-o-W respectively. Mauritius' SEMDEX and Morocco's Casablanca MASI indices also dipped 0.3% and 0.4% respectively W-o-W.
Indices under our coverage in Asia and the Middle East recorded a bearish performance as 2 of 5 indices gained W-o-W. Qatar's DSM 220 reversed last week's gains, dipping 3.0% while Thailand's SET and Turkey's BIST 10 indices shed 0.9% and 0.4% W-o-W respectively. Conversely, Saudi Arabia's Tadawul ASI led the gainers, advancing by 1.2% while the UAE's ADX General index inched up by 0.3% W-o-W.
Domestic Equities Market: A Bear Market Rally in the Domestic Bourse... NSE ASI Rose 3.2% W-o-W
The local bourse halted its extended bearish run this week as bargain hunting in bellwether stocks moved the market northward. Gains on 4 of 5 trading sessions buoyed the benchmark index by 3.2% W-o-W to 27,800.17points while YTD loss moderated to -11.6%. Similarly, investors gained N83.0bn as market capitalisation increased to N13.5tn. However, activity level was mixed as average volume rose 24.6% to 339.6m units while value traded fell by 31.6% to N3.1bn. ZENITH (149.7m units), TRANSCORP (142.5m units) and GUARANTY (134.3m units) were the top traded stocks by volume whereas GUARANTY (N3.6bn), MTNN (N2.9bn) and ZENITH (N2.6bn) led by value.
Gains in market movers, MTNN and ZENITH, moved the ASI up by 71bps on Monday. However, the bullish momentum halted on Tuesday as the benchmark Index pared 0.2%. The trading sessions on Wednesday and Thursday ended in the green, up 1.1% and 1.0% respectively following bargain hunting in MTNN and NESTLE. The bullish sentiment continued till the close of the week as ASI rose 0.6% on Friday due to buying interest in GUARANTY and ZENITH.
There was an uptrend in the sectors under our coverage as 5 of 6 indices ended in the green territory W-o-W. The Banking index gained the most with 9.2% owing to price appreciation in ETI (+33.3%) and ZENITH (+12.0%). Trailing closely, the Consumer and Industrial Goods indices advanced 4.0% and 2.0% respectively following buying interest in HONYFLOUR (+14.6%), NESTLE (+7.6%), BERGER (+9.5%) and CCNN (+2.8%). Similarly, the Oil & Gas and AFR-ICT indices gained 1.6% and 1.3% respectively as investors took position in OANDO (+20.9%) and MTNN (+2.2%). Meanwhile, the Insurance index lost 1.4 %, stemming from a price drop in LASACO (-12.1%) and CONTINSURE (-10.3%).
Investor sentiment as measured by market breadth (advance/decline ratio) improved at 1.6x as 38 stocks gained against 24 that declined. The top gainers were ETI (+33.3%), OANDO (+20.9%) and FIDELITY (+20.0%) while OKOMUOIL (-18.1%), NCR (-14.7%) and LASACO (-12.1%) led the decliners. We believe that the bullish run would be short lived due to sustained weak investor sentiment in the market.
Foreign Exchange Market: Naira Relatively Stable across Board
This week, the CBN stated its intention to protect the country's foreign reserves after a UK court ruled in favour of Process and Industrial Developments Limited (P&ID), a natural gas firm, granting them the right to seize $9.0bn in assets from Nigeria's government, over an aborted gas project in Calabar, Cross River State. Should the ruling take effect, the resulting consequence is a huge financial liability to the tune of 20.0% of the foreign reserves of Nigeria. This is further worrying when the OMO assets (US$16.9bn) held by foreign investors is considered relative to reserves level. In the absence of its weekly foreign exchange intervention, the foreign reserves level fell to US$44.1bn (08/21/2019), down 0.7% from US$44.5bn. Also, pressure builds up on the Naira from declining oil prices as oil price settled at US$59.92/bbl. (08/22/2019). This further dampens the prospect of accretion in foreign reserves through oil exports.
The CBN's spot rate traded flat all week to close at N306.95/US$1.00, depreciating 5 kobo W-o-W from N306.90/US$1.00. Similarly, at the parallel market, rate opened at N360.00/US$1.00 and traded flat all week. At the Investors' & Exporters' (I&E) FX Window, the NAFEX rate opened the week at N363.62/US$1.00 and closed at N363.14/US$1.00 on Friday, appreciating 28kobo W-o-W from N363.42/US$1.00. Activity level in the I&E Window fell 6.7% to US$1.8bn from US$1.9bn recorded in the previous week.
At the FMDQ Securities Exchange (FMDQSE) FX Futures Contract Market, the total value of open contracts of the Naira settled at US$10.9bn, up US$969.5m (3.1%) from US$10.6bn in the prior week. The AUG 2020 instrument (contract price: N365.32) received the most buying interest in the week with additional subscription of US$36.2m which took total value to US$125.9m. On the other hand, the MAY 2020 instrument (contract price: N364.87) was the least subscribed with a total value of US$5.0m, an additional subscription of US$1.1bn. Additionally, the AUG 2019 instrument matured on Wednesday and the SEP 2020 instrument (contract price: N365.47) was issued.
In the absence of yet another weekly intervention this week, we expect the CBN to continue to support the naira especially as pressure from oil price declines pose a threat. In the coming week, we anticipate the resumption of CBN weekly intervention and as such, maintaining exchange rate stability in the country.
Money Market: Bearish Momentum Persists in the Treasury Bills Market
As system liquidity opened the week negative at -N81.7bn, OBB and OVN stood at 28.3% and 30.3%, higher than previous week's close of 18.0% and 19.6% respectively. However, on Thursday, the rates trended lower at 23.6% and 24.9% respectively as OMO maturities worth N45.7bn hit the system. By the close of the week OBB and OVN settled at 17.7% and18.8% in that order as system liquidity closed negative at -N363.4bn.
In the secondary treasury bills market, the bearish sentiment persisted as average rate rose by 111bps to close at 13.3% W-o-W. The bearish performance can be adduced to both higher indicative rates in recent OMO auctions and sell-offs by offshore investors given the riskiness of the country in the face of weakening global growth. The 364-day instrument recorded the most sell-off as rates surged 157bps to close at 12.5% while rates on the 91-day and 182-day instruments increased by 115bps and 61bps to 12.9% and 14.4% respectively. Although the CBN held off OMO auctions this week, we expect the apex bank to keep rates in check through regular auctions given the huge OMO maturities of N393.3bn expected this week.
Bonds Market: Bearish Sentiment Continues in the Domestic Market
This week, the Debt Management Office (DMO) held its bond auction for August where it reopened the 5-year, 10-year and 30-year instruments. However, the auction recorded undersubscription across tenors. A total amount of N145.0bn was offered for APRIL 2023 (N40.0bn), APRIL 2029 (N50.0bn) and APRIL 2049 (N55.0bn) at stop rates of 14.3%, 14.4% and 14.6% respectively, higher than previous auction rates of 13.4%, 13.6% and 14.1% in that order. The higher rates at the auction reflects investors perception of the country's riskiness especially in the face of an impending global economic recession. Across tenors, bid-to-cover ratio stood at 0.3x, 0.8x and 0.9x indicating undersubscription, which was especially evident in the short-term instrument with subscription of N10.4bn against offer of N40.0bn.
In the secondary market, sustained sell pressures continued to drag performance as average yield increased 15bps to settle at 14.4% W-o-W. The market recorded bearish performance on Monday (+20bps) and Thursday (+7bps), bullish performance on Wednesday (-2bps) and Friday (-10bps) and closed flat on Tuesday. Across the term structure, the short-term instruments took the most hit as yields rose 117bps while yields on the medium-term instruments also increased 11bps and the long-term instruments closed flat.
In the SSA Eurobonds segment, the bullish momentum remained strong and all instruments that we track posted gains W-o-W save for the Zambian 2027 which recorded an increase of 2bps in yields. As observed in past weeks, the Zambian 2022 and 2024 instruments led the pack with yields shedding 197bps and 188bps respectively. The Ghanaian and Nigerian 2049 instruments trailed again with 89bps and 84bps drop in yields.
For the corporate Eurobonds instrument, the story is similar as all instruments gained W-o-W. The SEPLAT 2023 instrument enjoyed the most buying interest as yields declined by 71bps while the FIDELITY 2020 and ECOBANK 2024 followed, shedding 65bps and 60bps respectively. Given weakening global growth, investors are expected to remain attracted to emerging market instruments.
Sunday, August 25, 2019
Africa NIMPORT will on this day hold its 12th International Maritime Ports and Terminals Conference and Expo at the Oriental Hotel 3, Lekki- Epe Expressway Victoria Island Lagos.
Monday, August 26, 2019
Arbico Plc will on this day hold its Annual General Meeting at Plot D, Block 7, Industrial Crescent, Ilupeju, Lagos, while SLC Resources Limited will on this day commence its seminar on Developing and Implementing Corporate Strategy at 144 Association Road Dolphin Estate, Ikoyi, Lagos.
Tuesday, August 27, 2019
CIBN in collaboration with NIBSS will on this day commence its training on Payment and Settlement System Masterclass at Bankers House, PC, 19, Adeola Hopewell Street, Victoria Island, Lagos.
Meristem Securities Limited will on this day hold its training on LBO Modelling, while the 2nd Edition of Agribusiness Summit holds at Sheraton Abuja Hotel, Abuja.
National Bureau of Statistics will on this day release the data of the Federation Account Allocation Committee (FAAC) July 2019 disbursement, FXTM holds its seminar on Forex Trading and investment at FXTM Lagos Representative Office, 3rd Floor, 5 Allen Avenue, Ikeja, Lagos.
Wednesday, August 28, 2019
The Nigerian Stock Exchange will on this day hold its Fintech Foundation Course at the NSE Training Centre, Nigeria Stock Exchange House.
Investment Destination Nigeria will on this day hold its CEOâ€™s Business Summit at NAF Conference Centre and Suites, Kado, Abuja, while CENGSSUD will on this day commence its Masterclass on Sustainability in Enterprise Risk Management (ERM) training on the 22nd Floor, Obudu Hall, The Nigerian Stock Exchange, 4 Customs Street, Marina, Lagos.
The National Bureau of Statistics will on this day release the data of Household Consumption and Expenditure Q2, 2019.
Thursday, August 29, 2019
The Export Group of the Lagos Chamber of Commerce and Industry will on this day host the 2019 Export Group's Symposium themed Synergy between Regulations and Trade in Nigeria at LCCI Conference Exhibition Centre, Alausa, Ikeja, Lagos.
The Nigeria-South Africa Chamber of Commerce will on this day hold its August Breakfast Meeting at Orchid Hall, Eko Hotel & Suites, Adetokunbo Ademola Street, Victoria Island, Lagos, while Smart Products Nigeria Plc will on the same day hold its Annual General Meeting at Company's Board Room, 373, Agege Motor Road, Challenge, Mushin, Lagos.
Fintech NGR will on this day hold its Social Meet with the theme Bank Regulators, Fintech and Self-Regulation: Are They Mutually Exclusive at Sterling Bank, Head Office Annex, 239/241 Ikorodu Road, Ilupeju, Lagos.
Friday, August 30, 2019
The Most Influential 100 Honourees will on this day ring the Closing Bell at the Nigerian Stock Exchange, while the 2019 First Bank Agric Expo holds on the same day with the theme "Agricultural Value Chain - Spotlighting Opportunities and Managing Risks".
ABC Transport Plc will on this day hold its Annual General Meeting at Mayfair Suites and Conference Centre, Plot 40, Egbu Road, Owerri, Imo State.
Aluminium Extrusion Industries Plc will on this day hold its Annual General Meeting at Presidential Hotel, 1, Birabi Street, New GRA, Port Harcourt, Rivers State, while Daar Communications Plc will on the same day hold its Annual General Meeting at Nicon Luxury Hotel, Area 11, Garki, Abuja, Federal Capital Territory (FCT).
NASME will on this day commence its 3rd Edition of Business Round Table Themed Impact of Technology on Micro, Small and Medium Business Enterprises at Adeyemi Bero Hall, Alausa, Lagos.
National Bureau of Statistics will on this day release the data of the social statistics report 2018.
Saturday, August 31, 2019
Nigerian-American Chamber of Commerce will on this day hold its training course titled Emotional Intelligence Mastery for Superior Performance at NACC Board room Capwire Building, 19A Sinari Dananijo Street, Off Ajose Adeogun Street, V.I, Lagos.
The Fintech Institute will on this day hold its 2019 Cyber Security and Blockchain Conference at Red Carpet Hall Oniru Victoria Island, Lagos.
National Bureau of Statistics will on this day release the data of Q2, 2019 Terms of Trade Report.
Lagos Boss International BOM in collaboration with F.E.C.A will on this day hold its Business Opportunity Summit 1.0 at Festac Link Bridge 1st Avenue Lagos.
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