What To Expect From The Markets This Week – 140119

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Saturday, January 12, 2019 08:00 AM / Proshare Content


Nigeria: Economic Dashboard @ 110119

 

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Editor’s Pick

 

New National Minimum Wage

Source: Afrinvest Weekly Update - January 11, 2019

 

New National Minimum Wage: Labour Puts Pressure on FG Ahead of 2019 Elections The clamour for a new minimum wage has remained rife and this was the biggest story this week. In November 2018, after a series of industrial actions by organised labour, the tripartite minimum wage committee led by the FG proposed a new minimum wage of N30,000/month (currently at N18,000/month). However, final approval is subject to the decision of the presidency, and the legislature which would pass the minimum wage bill into law. Since the agreement was reached in November, progress has been slow. 

With the 2019 elections less than six weeks away, labour threatened further industrial actions this week. Historically, labour unions intensify agitations in the period just before elections as inaction could hurt the chances of the executive at the polls. Hence, the process of approving the minimum wage was finally set in motion on Tuesday. The FG and organised labour reached a Memorandum of Understanding (MoU) which culminated in plans to send the minimum wage bill to the National Assembly by January 23, 2019, for approval. Similarly, the FG constituted a technical advisory committee to advise on the implementation of the new minimum wage, the adjustment of salary increases for those earning above the minimum wage and sustainable funding options for government. The report of this committee is expected by February 9, 2018, just before the elections. 

In our opinion, the FG is keen on a new minimum wage. This has already been reflected in the 2019 budget proposal where personnel costs are projected to increase by 8.1% to N2.3tn. While this is only a moderate increase, we expect that the adjustment across salary scales to reflect the new minimum wage will push personnel costs significantly higher in 2020. 

Meanwhile, we worry that the FG’s move seems to be one sided as sub-national governments have expressed concerns about the steep rise in the proposed minimum wage. State governors have suggested a minimum wage of N22,500/month given the fragile state of their finances. Our analysis suggests that this is reasonable, considering that majority of Nigerian states already struggle to fund their budgets. Without the cooperation of states or a significant boost to revenues, we expect implementation to remain poor, potentially resulting in continued industrial actions by labour. 

Global Equities Market: Investor Optimism Rises amid Dovish FED and Trade Talk Hopes

On Thursday, FED Chairman, Jerome Powell, at the Economic Club in Washington reiterated the central bank’s commitment to proceeding with caution on its monetary policy amidst a stable economic outlook. The slow down signal is further necessitated by the increasing fiscal debt burden high interest cost could impose. Currently, the public hold US$16.0tn of total debt amounting to US$21.9tn. Also, the trade talk held between the World’s two biggest economies this week renewed hopes of a possible near-term deal. Both sides made progress on structural issues such as forced technology transfers and intellectual property rights, as well as commitments to buy US agricultural products by China.   

Progress on trade talks and the FED’s restraint raised optimism as performance in the US markets was bullish across board. In the US markets, the S&P 500 and the NASDAQ closed the week higher, up 2.6% and 3.7% W-o-W respectively while UK FTSE gained, up 1.7% W-o-W. Furthermore, France's CAC 40 (0.7% W-o- W), Germany's XETRA DAX (0.8% W-o-W), Hong Kong’s Hang Seng (4.1% W-o-W) and Japan’s Nikkei 225 (4.1% W-o-W) advanced during the week. 

Across the BRICS, performance was largely bullish as all indices trended northwards. South Africa’s FTSE/JSE All Share recorded the largest gain, up 2.8% W-o-W, followed by Russia’s RTS and Brazil’s Ibovespa with 2.4% and 2.1% W-o-W respectively. Similarly, China’s Shanghai Composite advanced by 1.5% W-o-W due to optimism from the US and China trade talk held this week. Finally, India BSE Sens closed the week with a gain of 0.9%. 

In Africa, performance was negative as 5 out of 6 markets under our coverage recorded losses W-o-W. The Nigeria’s All-Share Index recorded the largest loss, down 2.6% W-o-W, due to tensions surrounding the presidential elections. Additionally, Mauritius’ SEMDEX index (0.5% W-o-W), Kenya’s NSE-20 (0.3% W-o-W), Morocco’s Casablanca MASI (0.3% W-o-W) and Ghana’s GSE Composite (0.0% W-o-W) declined close of week. On the flip side, Egypt’s EGX30 emerged the lone gainer, up 1.2% W-o-W. 

In Asia and the Middle East, there was a bearish performance as all markets recorded losses W-o-W. Saudi Arabia's Tadawul ASI led the laggards, declining 4.6% W-o-W, followed by Turkey's BIST 100 (-4.2% W-o-W), Qatar's DSM 20 index (-2.9% W-o-W), Thailand’s SET index (-1.7% W-o-W) and UAE's ADX General Index (-1.3% W-o-W). 

Domestic Equities Market: Benchmark Index Falls Below 30,000 Psychological Mark… ASI down 3.4% W-o-W General sentiment for equity assets on the local bourse remained soft this week as persistent sell-offs, especially in market bellwethers, weighed heavily on performance. Investors exited positions in DANGCEM, GUARANTY, UBA, NESTLE, UNILEVER and ACCESS during the week, dragging the benchmark index below the 30,000 mark on 09/01/2019 - the first time since May 2017. We note that, while ACCESS continued to witness sell pressures (W-o-W loss: -2.6%), buying interest in DIAMOND (W-o-W return: +12.2%) has remained upbeat following the premium investors will earn on DIAMOND at the conclusion of the entities’ merger.

Thus, the All Share index fell 2.6% W-o-W to 29,830.70 points, YTD return settled at -5.1% while market capitalisation decreased by N301.4bn  to N11.1tn. However, activity level was mixed as average volume traded declined 38.5% to N253.1m units while value traded rose by 33.8% to N2.8bn. The top traded stocks by volume were DIAMOND (184.4m units), FBNH (109.7m units), and ZENITH (102.9m units) while ZENITH (N2.2bn), GUARANTY (N2.1bn) and NESTLE (N2.0bn) led by value. 

Across sectors, performance was largely negative as all indices save for the Industrial Goods index closed in the red W-o-W. The Insurance index was the biggest loser, down 7.0% due to losses recorded in NEM (-33.5%) and CUSTODIAN (-13.1%) – the largest stocks on the index. Similarly, price depreciation in GUINNESS (-8.1%) and FLOURMILL (-11.7%) dragged the Consumer Goods index 3.6% lower while sell pressures in UBA (-7.0%), ETI(-3.6%), SEPLAT (-10.0%), FORTE (-2.0%) and TOTAL (-1.4%) dipped the Banking and Oil & Gas indices lower by 0.9% and 6.3% respectively . On the flip side, the Industrial Goods index rose 1.0% due to buying interests in JBERGER (22.2%) despite sell offs in DANGCEM (-4.8%). 

Investor sentiment measured by market breadth (advance/decline ratio), strengthened to 0.5x from 0.4x recorded the previous week as 22 stocks advanced against 42 that declined. The best performing stocks W-o-W were JBERGER (+22.2%), DIAMOND (+12.2%) and TRANSCORP (+11.2%) while NEM (-33.5%), RESORTS (-26.0%) and UNITY (-17.0%) led laggards. We maintain a bearish outlook for the market in the near term as we expect the run on the market to persist till post-election stability is established. Nonetheless, we are of the opinion that long-term investors can take position in cheap assets with sound fundamentals in order to take advantage of the anticipated post-election rally. 

Money Market: System Liquidity Pressures Remain Activities in the money market this week were somewhat muted as system liquidity remained in the negative region. This followed the aggressive pace of OMO auctions by the Central Bank of Nigeria (CBN) on Tuesday and Thursday in its bid to prevent speculative sentiments in the market ahead of the upcoming Presidential Elections. Tuesday’s auction saw the CBN offer OMO Bills worth N60.0bn, although it was largely undersubscribed, at N10.7bn despite attractive rates on the offer: 107-day (11.9%), 170-day (13.5%) and 317-day (15.0%). Furthermore, maturity expectations on OMO instruments worth N375.4bn saw the issuance of another OMO tranche on Thursday in an offer worth N400.0bn which was also largely undersubscribed. Only the 364-day OMO bill was 1.13x subscribed while the 91-day (11.9%) and the 189-day (13.5%) were both undersubscribed by 0.12x and 0.02x.

Direction of rates in the secondary market saw money market rates - OBB (Open Buy Back) and OVN (Overnight) – rise further from 20.0% and 23.8% at close of the prior week to 22.7% and 24.7%this week. Notably, these rates surged to 26.67% (OBB) and 27.67% (OVN) on Wednesday following Tuesday’s surprise OMO auction as system liquidity worsened to the negative region. In the secondary T-bills market, bullish sentiment, especially for long tenor instruments, saw average yields decline 56bps to 13.52% on Friday from 14.1% last week. 

Next week, the Apex bank is scheduled to repay N429.6bn maturing Treasury bills with the same sum rolled over. We expect rates at the auction to remain at attractive levels in line with recent trend while we anticipate a near muted activity in the secondary market. Also, in line with its tight system liquidity posture, we expect conduct of OMO auctions by the CBN next week to offset maturities worth N560.9bn. 

Foreign Exchange Market:  Naira Remains Stable as Support is Sustained During the week, the Apex Bank reiterated its commitment to tight monetary stance and maintenance of stable exchange rate policy in a statement outlining Policy Thrust for 2019 posted on its website.  This was culled from the keynote address delivered by the Governor, Godwin Emefiele, at the November 2018 Annual Bankers’ Dinner of CIBN titled: “Strengthening the Economic Recovery Process in Nigeria”. However, the foreign reserves contracted this week as the balance decreased by 6bps to US$43.0bn (as at 9th January) from US$43.1bn as at last week’s close. In its first intervention in 2019, the CBN injected a total of US$210.0m across various market segments – US$100.0m in the Wholesale and US$55.0m each in the SME and Invisibles (tuition fees, medical payments and BTA) segments. 

In the parallel market, Naira closed the week flat at N362.00/US$1.00 due to CBN’s forex injection on Monday to boost sales in the wholesale segment of the market. Similarly, the CBN’s spot rate appreciated by 5kobo from N306.95/US$1.00 to close at N306.90/US$1.00; while in the Investors’ & Exporters’ (I&E) FX Window, the Naira opened the week at N365.30/US$1.00 but appreciated 18kobo to close the week at N365.12/US$1.00. 

Likewise, the activity level in the I&E FX window rose 57.6% W-o-W to US$866.5m from US$549.9m in the prior week. In the FMDQ OTC open futures contract market, total subscriptions rose 4.1% W-o-W to US$4.9bn from US$4.8bn last week, with prominent buying interest observed in the May 2019 contract. We expect the Naira to remain stable as the central bank maintains its stance to keep the currency stable through the period. 

Bond Market:  Settled into Pattern of Inactivity The market seems to have settled into a pattern over the past few months, resulting in moderate activity in both the primary and secondary markets. This week fell in line with trend, with trades on the FMDQ OTC recorded at N95.3bn relative to N160.0bn over Q4:2018. This is in line with expectations as investor` interest remains firmly focused on shorter term instruments. Nonetheless, the yields on Treasury bonds pared moderately by 4bps to settle at 15.3%. This was due to increased buy interest on the final trading day of the week, before which yields had increased moderately by 1bps. We note that the yield differential between Treasury bills will likely result in a persistence of the trend witnessed over H2:2018 to date. Although we expect yields on FGN bonds to trend upwards over the short-term. 

In the Sub-Saharan Eurobond market, demand levels were sustained into this week, as the average yield declined by 36bps to settle at 7.8%. There were yield declines witnessed across all bonds, save for the Mozambique Eurobond, which recorded an 8bps increase to settle at 14.1%. On the flip side, the largest declines in yields were recorded on the Ghana and Kenya Eurobonds, which recorded average declines in Ask-yields of 45bps and 40bps respectively to settle at 7.8% and 7.7%. Similarly, the average yield on Nigeria’s Eurobonds pared in the week’s trading by 47bps, to settle at 7.5%. The resurgence in interest in assets is in line with our expectations and trend in election years. We expect continued interest in US Dollar assets through to H2:2019 as investors remain wary of risk factors on the horizon that could potentially affect the value of the naira.

The trend in the corporate Eurobonds space closely mirrored that of SSA Eurobonds, as the average yield pared by 20bps to settle at 7.6%. There were yield declines across all bonds save for the Diamond Bank 2019 bond, which recorded a yield increase of 162bps to settle at 13.1%. This was expected as investors were anticipated to take profit on the instrument given the decline in the yield of the bond following the announcement of the bank’s merger with Access Bank Plc. Also, there was significant demand for the FBNH 2021 Eurobond during the week, as the Ask-yield on the bond declined by 1.5% to settle at 6.3%. Similar to our expectations for Nigeria Sovereign Eurobonds, we project the yields on these bonds to pare over the short-term given factors stated.

 

 

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Monday, January 14, 2019

The Federal Ministry and Science & Technology will on this day hold the TECHNO-Expo' 2019 at Michael Okpara Squrae Enugu State while the Event Xperience Africa 2019 will hold same day at Landmark Center Water Corporation Drive Victoria Island, Lagos.

 

 

Tuesday, January 15, 2019

The Brigette in Nigeria will on this day hold the Exceptional Leadership & Employee Conference at Radisson Blu Hotel Victoria Island Lagos while the Nigeria Economic Outlook Conference will hold same day at Grand Ball room Eko Hotel & Suites Lagos.

 

The National Bureau of Statistics will on this day release the AUTOMOTIVE GAS OIL (DIESEL) PRICE WATCH December 2018, Federation Account Allocation Committee (FAAC) December 2018 Disbursement, NATIONAL HOUSEHOLD KEROSENE PRICE WATCH December 2018 and PREMIUM MOTOR SPIRIT (PETROL) PRICE WATCH December 2018.

 

The Corporate Affairs Commission will on this day hold the Customer Forum/Stakeholdrs Forum while the Covenant International Model United Nation in Partnership with United Nations Information Center (UNIC) Conference will hold same day at Covenant University Sango-Ota Ogun State

 

 

Wednesday, January 16, 2019

The London Stock Exchange Group will on this day hold the launch of the Companies to Inspire Africa Report, while a Post-Launch Workshop titled "Enabling the Growth Agenda" will hold at the Stephenson Harwood’s London headquarters on the same day.

 

The Abuja Chamber of Commerce and Industry will on this day hold the Roundtable 2019 Budget at ACCI Headquarters, KM 8, Airport Road, Abuja while the Data Science Nigeria will on same day launch the AI+ Clubs in secondary schools at International School, University of Lagos.

 

 

The National Bureau of Statistics will on this day release the Liquefied Petroleum Gas (Cooking Gas) Price Watch December 2018 

 

 

Thursday, January 17, 2019

 

The Retail Roundtable will on this day hold The Nigeria Retail Business Outlook 2019 at Lagos Continental Hotel, Victoria Island Lagos while Meristem Securities Limited will on same day hold training on Understanding Financial Markets.

 

The National Bureau of Statistics will on this day release the CPI and Inflation Report

 

Friday, January 18, 2019

The Lagos Business School will on this day hold the MBA Experiential Session at GTB Classroom Lagos Business School, Klm 22 Lekki-Epe Expressway Ajah, Lagos, Nigeria while Data Science Nigeria will on this day hold the 1st Edition of AI + Professional Meet-up at Terragon Group Adeola Hopewell Street Victoria Island, Lagos

 

The Central Bank of Nigeria will on this day hold the National Financial Literacy Stakeholders Conference at Ladi Kwali Hall, Sheraton Hotel and Towers, Abuja

 

Saturday, January 19, 2019

The Lagos SME Bootcamp will on this day hold An Intensive Planning Session for 2019 at Lagos Oriental Hotel while Empowering People for Business and National Transformation will hold same day at Lagos Chambers of Commerce and Industry

 

 

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Check out our Events Calendar for event details and follow us on Web, TV, APP and Social Media for updates as the week unfolds. Yours to Serve!

 

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