Weekly Economic and Financial Commentary - Week Ended Mar 13, 2020


Saturday, March 14, 2020 / 03:00PM / By ARM Research /Header Image Credit: ARM Research


Global Economy

COVID-19 continued its severe negative impacts across the globe. Stock markets in the US, Europe and Asia slipped into bear territory this week, marking an end to the longest bull run in history. In an attempt to limit this negative impact, the BOE, following on from the US Fed last week, cut their main interest rate by 50bps to a historic low of 0.25%. The Fed, meanwhile, made an additional $1.5 trillion available for overnight lending markets soon after, on the fiscal leg, Trump signed a $8.3 billion emergency spending bill. The ECB, meanwhile, surprisingly left its interest rates and mar-ginal lending rate unchanged at 0% and -0.5% (vs. expectation of -0.6%), respectively. Instead, a raft of other stimulus programs was introduced to support the economy, including an increase in the monthly bond purchasing programme by an additional 120billion Euros over the rest of the year. Finally, in the oil market, the impending price war caused by the division in OPEC+ has put oil prices on track for its worst week since the 2009 financial crisis as prices plummeted 27.6% WoW to $32.79 per barrel.


Domestic Economy 

While the corona virus and its impact on financial markets remained the global theme, the hum on a potential currency devaluation by CBN took the central stage in the domestic scene. This rides on the back of lower crude oil prices and less inflow of dollars. Consequently, this led to panic buying at the FX markets with the NGN/USD closing the week at N392.5 and N371.3 at the parallel mar-ket and IEW respectively. Meanwhile, the CBN on Thursday debunked rumours of a devaluation, stating clearly that the FX reserves is still at comfortable levels (currently at $36.17 billion) to meet genuine demand for the US dollar. Elsewhere, data on capital importation showed total capital inflow into the country slowed in Q4 2019 by -32% QoQ to $3.8 billion. A cursory look at the numbers revealed Foreign Portfolio Investment (FPI) and other investment declined by 38% and 31% QoQ to $1.9 billion and $1.7 billion respectively, while Foreign direct investment rose by 25% QoQ to $257 million. On other fronts, the house of representatives indefinitely suspended the consideration of the $22.8 billion external loan request by the president..


Equities and Stock Recommendation

Nigeria's equity market joined global routs as domestic stocks suffered one of the worst week on record. The NSE ASI declined by 13.49% WoW rounding off at 22,733.35 points with market capitali-zation shedding off N1.8 trillion closing at N11.8 trillion. All sectors experienced losses, bulk of which stemmed from the Oil and Gas (-24.39%), Banking (-24.07%) and Brewers sectors (-26.80%). Losses were also witnessed in the Telecoms (-12.37%), Personal Care (-11.63%), Cement (-7.10%) and Food (-8.87%) sectors. Furthermore, the major drivers of these heavy losses were from ZENITH-BANK (-36.7%), GUARANTY (-22.76%), STANBIC (-16.29%), DANGCEM (-10.00%), SEPLAT (-10.00%) and NESTLE (-10.00%).

Here are the stocks we recommend for the upcoming week: Dangcem Plc - STRONG BUY (FVE: N240.87), Nestle Plc - STRONG BUY (FVE: N1447.39), Guaranty - STRONG BUY (FVE: N49.66), UBA - STRONG BUY (FVE: N13.04), Seplat - STRONG BUY (N828.9). Click here for our Weekly Stock Recommendation.


Fixed Income

The subscription rate of 2.82x at this week's NTB auction was the highest so far this year, as the FG sold just the N86.3 billion that it offered and was due to mature -- the lowest since January. The average PMA rate at the auction declined 37bps to 3.86%, with the 1-year rate settling at 5.3%. In the secondary market, average yields rose 42bps WoW to 7.66%. This was spurred by selloffs in the bond market which brought its average yield 97bps higher to 11.45%. The most bearish sentiments were seen in the March-2027 (+345bps), April-2028 (+228bps) and Jan-2022 (+210bps) notes. NTB yields, meanwhile, were unchanged at 4.00% for most of the week before falling 13bps on Friday to close the week at 3.87%. This was driven by interest in short and mid tenor bills.


Take-Away For The Week

Trend in capital importation

This week, we feature the capital importation for each month over 2019. The total capital importation figure, made up of: foreign direct investment, portfolio investment and other investment, summed up to $23.7 billion, which is 29% lower than 2018. November's figure of $969.82 million was the lowest figure since December 2018. This mirrored impact of the CBN's heterodox policy barring non-bank financial institutions' participation in OMO market in October, as FPIs dropped 25% m/m to $469 million -- also low-est since December 2018.


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Research 234 (1) 2701653  research@armsecurities.com.ng


Nigeria: Economic Dashboard @ 130320 



Proshare Nigeria Pvt. Ltd.

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