Market Summary: Year-to-Date Return Settles at 15.85%

The NSEASI advanced by 1.22% following the price advancements witnessed on 42 counters, led by DIAMONDBNK (+9.85%). Also, the price shedding witnessed on only 12 stocks, caused the market breadth to close positive at 3.50x. Consequently, market cap gained NGN190.96bn to close at NGN15.88trn at the sound of the closing bell.

Leading Sectors

Industrial Goods Sector: Sector Outperforms the Market

Although the sector’s most capitalized stock, DANGCEM, witnessed more offers than bids at some point during trades, the counter advanced by 3.04% to close at NGN268.00. In addition, investors were also bullish on some medium and large cap stocks such as; WAPCO (+0.67%) and CCNN (+0.56%) which advanced to NGN52.35 and NGN18.00 respectively. As a result, theNSEIND index advanced by 1.73%, with a Year-to-Date return of 17.77%.

Banking Sector: Bullish Sentiments Persist

The sector sustained the positive momentum witnessed at the end of the previous week. As a result, impressive gains were recorded on DIAMONDBNK (+9.85%), which closed as the overall top gainer in the market. Other tier-2 banks like FIDELITYBK(+9.60%), SKYEBANK (+9.38%) and WEMABANK (+7.02%) also featured on the market’s top 10 gainers’ list.

Finally, positive sentiments were witnessed in the insurance (+0.56%) and oil and gas sectors (+0.28%), as indicated by the uptick witnessed in both sector indices. In contrast, the consumer goods sector index, NSEFBT10, closed in the negative territory following losses recorded on medium and bellwether stocks like NB (-1.19%), GUINNESS (-1.79%), FLOURMILLS(-1.59%) and DANGSUGAR (-4.56%).

Based on our analysis, we attribute the positive close to bargain hunting activities on stocks that initially shed value, particularly in the banking sector. We also note the impact of the price advancement on DANGCEM to the overall market performance.

Following the implementation of the NSE’s new pricing methodology, four stocks which include ABCTRANS, ROYALEX, PRESTIGE and LASACO fell below NGN0.50 to close at NGN0.48.

Why Nigeria Stock Exchange is recording growth in 2018

Nigerian Stock Exchange Trading floor [Photo:]

Oscar Onyeama, the Chief Executive Officer of the NSE, made this known at the Exchange’s 2017 Market Recap and Outlook for 2018 programme held at the exchange in Lagos.

Mr. Onyeama argued that about 12 per cent growth recorded by the market so far in 2018 was due to the emergence of the Nigerian bourse as the third best performing market in the world in 2017.

Mr. Onyema, who maintained that the news made more investors to embrace the nation’s bourse, added that it also boosted the confidence of players in the market.

The NSE boss noted that many people have identified that the market is still relatively cheap and this contributed to the price rally in the market.

On market performance in 2017, the NSE boss said that market recovered from the macroeconomic overhang of the commodity down cycle to become the third best performing market in 2017 globally, with a 42 per cent return in the NSE All-Share Index.

Market capitalisation rose by 47 per cent in 2017 to N13.62 trillion against N9.26 trillion posted in 2016, he said, adding that CBN policies increased liquidity in the foreign exchange market.

Commenting further, he explained that the equity market activity rose from 2016 levels, as market turnover increased by 121 per cent to N1.27 trillion from N0.58 trillion.

“New bond issuances increased over the previous year, while bond yields gradually moderated from 2016 levels amidst easing inflation and greater foreign exchange stability.

“Yields across various tenors declined between 0.4 per cent and 1.5 per cent, and market turnover declined by 24 per cent in 2017, as investors sought higher returns in alternative product classes.

“Supplementary issuances by the federal government saw bond market capitalisation increase by 34 per cent year-on-year”, he said.

Commenting on the bourse’s projection for 2018, Mr. Onyema said that political activities and currency movements would affect the market growth.

“Indeed, to some extent, political activities and currency movements will have some effect on the market, but we expect that such impacts will be short lived and the performance of the underlying business activities will ultimately determine market performance,’’ he explained.

Beware of foreign portfolio investments-driven growth, Nigerian experts warn

by Femi Adekoya

Nigerian Stock Exchange

Economic experts have warned Nigeria not to be carried away by the influx of foreign portfolio investment dominating the Nigerian Stock Exchange (NSE), noting that a combination of highly mobile portfolio investments and unreliable crude earnings could unravel without warning, and cause external reserves to decline, as experienced from April to November 2008.Besides, they urged the Federal Government to strengthen the non-oil export sector rather than depend solely on rising oil prices. One of them, a financial expert and Chief Consultant, B. Adedipe Associates Limited, Dr. Biodun Adedipe, said as Nigeria approaches the 2019 elections, it is likely that most foreigners would leave the country, and most likely take their investment along due to uncertainty of macro-economic policies.“We need to do at least 50 per cent of what we did yesterday to get to the historical peak the stock market in Nigeria ever reached, and that was in 2008,” he said He noted that the euphoria over the seeming foreign exchange liquidity is gradually pushing Nigeria to another worrisome strait, adding that the economy could tailspin into trouble if more attention is not paid to strengthening the non-oil sector to truly diversify foreign earnings, and drive down reliance on consumption imports.

Adedipe, during a round table session organised by the Chartered Institute of Bankers of Nigeria (CIBN), tagged the 4th Economic Outlook: “Implication for businesses in Nigeria in 2018,” noting that although Nigeria’s economic recovery is still fragile, expressed hope as most economic agents remain upbeat and optimistic. Meanwhile, the President/Chairman of Council, CIBN, Prof. Segun Ajibola, tasked economic managers to urgently address issues such as the current high unemployment rate, which rose exponentially from 14.2 per cent to 18.8 per cent in 2017.

He maintained that efforts need to be further intensified to ensure that the steps being taken to improve electricity generation and distribution across the country yield the desired result.

“It would not be misplaced to categorically state that a state of emergency should be declared across the country on security, particularly between farmers and the Fulani Herdsmen in order not to scare away foreign investors from prominent economic hubs of the nation,” he advised. Delivering his keynote address, the Chief Executive Officer, Nigerian Economic Summit Group (NESG), Laoye Jaiyeola, said for Nigeria to achieve an all inclusive growth economy, it must prioritise development objectives towards running a knowledge-based economy, increase investments in technology, and improve the quality of lives of its people.

According to him, sectors that would drive growth in 2018 include agriculture, oil and gas; cement and trade, but stressed that oil refining would weigh down growth due to its high operational costs and frequent maintenance of the nation’s refineries, which would persist in 2018, and affect output of refined products.He noted that the weak relationship between growth and employment calls for concern, stressing that despite the economic growth experienced in 2017, unemployment and underemployment rates rose to 40 per cent as at Q3 2017. He also advised that government policies and interventions must focus on “value-addition” sectors that have the potential to create jobs on a large scale.

The CIBN boss however commended efforts made so far by the present administration, saying the launch of the Economic Recovery and Growth Plan (ERGP) in April 2017, was a step in repositioning the country’s economic fortunes with the banking and finance sector also recording major developments.

In his words,” It is not far-fetched to declare 2017 a progressive year for the Nigerian economy considering especially the enviable manner the country was able to weather the prevailing economic storms at the beginning of the year. After five consecutive quarters of contraction, the country rebounded from recession with approximately 0.6 per cent growth recorded in the second quarter of 2017 inflation dropped from its peak of 18.72 per cent in January 2017 to the current value of 15.98 per cent, the lowest rate in 16 months.”

Outlook 2018 – On Thin Ice; Charting a Course to Solid Grounds

Investment Précis Thursday, January 18, 2018 /10:48AM 

Continuing its path of a gradual recovery, global growth strengthened steadily in 2017 on the back of increased trading activities across countries as well as central banks’ interventions. Improved consumer spending and business investments in the US and Euro area and firmer net export and production in China were the major drivers of global growth. In the UK, however, the economy continues to weather the Brexit storm in the face of declining consumption and real wage growth. 

With business investment and net trade growing faster than envisaged in Britain, the Bank of England hiked rate for the first time in 10 years. This is expected to mitigate Brexit-related constraints on investment and labour supply and also to diminish the obvious slowdown in the economy.  The US Fed also implemented its rate hikes in the year, as expected, alongside launching its balance normalization strategy, to ensure that interest rate remain a viable tool to be employed in the economy.  

Asides the growth in China and its expected contribution to global growth, Other emerging Asian countries witnessed growth in 2017 which stemmed from improvement in investment, manufacturing and trade. While we witnessed strong growth in domestic demand, similar growth was also witnessed in net exports, owing to the growth in high-tech sectors. Consequently, Bangladesh and India are expected to be amongst the top growing emerging Asia economies 

In Sub-Saharan Africa, improved commodity prices anchored growth in 2017 and are expected to continue to do so in 2018. Increased global oil demand from the OECD region and the OPEC output cut were the major drivers of the increase in oil price witnessed in H2:2017, which significantly benefitted major oil exporting countries.   

The growth expectation for emerging markets (specifically African countries) has been the major driver of investments to these countries. According to the IMF, growth in Sub-Saharan Africa is expected to rebound to 2.50% in 2017 from 1.40% recorded in 2016, similarly Foreign Direct Investment (FDI) to the region improved significantly over the same period. Based on growth expectations, strengths, weaknesses and size, countries like Angola, South African, Kenya, Mauritius, Cote d’Ivoire, Tunisia, Rwanda, Botswana and Nigeria have been identified as possible top FDI destinations in 2018.  

In a bid to continue to attract foreign investments and foster economic growth, the Nigerian government has put in place several policies and taken steps to address pressing issues in the economy, like the Economic Recovery and Growth Plan (ERGP), Voluntary Assets and Income Declaration Scheme (VAID), Appropriation Bill, Debt restructuring etc. Given the uncertainties that still lie ahead, we believe the economy is still on thin ice but it is charting a course to solid grounds. 

In November 2017, the 2018 appropriation bill, which was an improvement over the 2017 bill, was presented, and we have mixed opinions on the feasibility of stated underlying assumptions. While we believe that targets like USD47.00pb oil price are attainable and quite realistic, we do not repose same faith in some others like the 12.42% average inflation rate and NGN305/USD exchange rate as we consider then being stretched on the optimistic side considering the uncertainties surrounding them.  

While the Presidency expects a GDP growth rate of 3.5%, we forecast a real GDP growth of 1.77% in 2018. We expect the improved oil production and price, which triggered the end of the 2016/2017 recession, and the subsisting policies on agriculture as well as the strength of government expenditure to be the major drivers of growth in 2018.  

On the inflation side, despite the inflationary pressures prevalent in 2017, the introduction of the I&E FX window (which moderated external cost pressures), coupled with the high base effect, were a few of the factors responsible for the downward trend witnessed. Given our expectations of an expansionary fiscal policy, a relaxation of the hawkish monetary stance as early as the first quarter of this year, and campaign spending ahead of the 2019 General Elections, we do not expect a significant drop in inflation rate. 

While keeping inflation rate in check remains one of the major objectives of the Monetary Policy Committee (MPC), supporting growth and ensuring economic stability are also important objectives of the committee. To support foreign inflows and ease the pressure on the currency, the committee maintained the MPR at 14% all through 2017, even as the CBN also made several modifications to the FX system. This saw exchange rate stable at NGN363/USD at the I&E FX window and parallel market. 

Furthermore, the CBN reinforced its ban on importation of 42 items, which led to the increased production of some basic agricultural produce in the country. Rice is one of the most important food items in Nigeria and a favorite staple in all regions of the country. Given this demand, and the estimated supply shortfall of 2.5MMT, we see legitimate avenue for investors to make profit in rice cultivation. Similarly, oil palm processing has also been identified as a viable sector for investment.  

A major investment hub for 2017 was the Nigerian Equities market, as the NSEASI gained 42.30% at the end of the year, representing the highest return recorded since 2013. The increased buying pressures witnessed may be attributed to the introduction of the I&E FX window by the CBN, the MSCI’s decision to retain and increase the weighting of Nigerian stocks in its Frontier Market Indexes and the impressive financial scorecards churned out by the listed companies. 

In 2018, we envisage a continuation of the current upward trend albeit at a much slower pace. Whilst we expect sectors such as the consumer goods and industrial goods sectors to consolidate on the gains from the economic recovery, we posit that the banking sector will post a moderate return on the back of our modest earnings growth expectations for the sector’s heavyweights. 

Also, we don’t expect the insurance and the oil and gas sectors to be left out on the recovery. Using the fundamental and neural network methodologies, we arrived at an expected 2018 return of 14% for the market. 

In the Fixed income space also, investors benefitted from the stable FX and high yield environment, resulting in significant participation in the market. Following the government’s intent to substitute high-rates short-term domestic debt with long-term foreign loans, we had more Eurobond auctions in 2017. Similarly, there was a further deepening of the debt market, as the government introduced the FGN Savings bond, Diaspora bond and the Sukuk, which were all oversubscribed. 

Despite our expectation of a plausible rate cut in 2018, we do not expect a significant moderation in yields because of this. Nonetheless, we still expect market yields to gradually trend downwards, as market participants re-price assets in the light of the cut in policy rate. 

Also, we expect some periods of declines, depending on the conditions in the OMO market and the settlement of maturing T-bills with foreign loan.  

Given our outlook on several economic variables, we provide a guide for our investors to earn alpha, even as the economy charts its course to solid grounds.