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Breakfast Report - 05 October 2020

Going by the Sep'20 Purchasing Managers Index (PMI) numbers released by the CBN, Nigeria recorded a faster pace of contraction in both the manufacturing and non-manufacturing sectors compared to the previous month -Aug'20. Activities in both sectors have shrunk for five consecutive months, a butterfly effect of the COVID-19 pandemic. The PMI reading for the manufacturing sector stood at 46.9 points (Aug'20: 48.5) while that of the non-manufacturing sector stood at 41.9 points (Aug'20: 44.7). The level of employment in both sectors declined at a faster pace (Manufacturing: -0.5; Non-manufacturing: -2.7), in response to a faster decline in new order levels (Manufacturing: -2.8; Non-manufacturing: -4.5). Although pessimism has trailed new order levels in both the manufacturing and non-manufacturing sectors for five consecutive months, new export orders for manufactured products appears to have picked up (+0.9), suggesting that the overall pessimism in order levels is due largely to weak local demand. This assertion is not implausible in the context of lower levels of employment and rising prices (Output prices: +0.4; Input prices: +3.0). While the GDP release for Q3’20 is a month away, the abrupt impact of COVID-19 on the value of the Naira, trade, and by extension, the purchasing power of Nigerians is already being felt. Recent energy reforms, coupled with the devaluation of the Naira, are new costs that purchasing managers must deal with. These costs may eventually be passed on to consumers, in form of higher prices, exacerbating an already unpleasant inflation situation.

Equity: With the Bulls dominating the trading last week, the domestic market maintained its positive run while the YTD performance returned positive. We expect some level of stability in this week as a number of fundamentally sound stocks find a new support level. However, with the gains recorded in the last few weeks, the possibility of profit taking on recent gains cannot be overruled.

Stock Watch: Just like the pattern plotted in recent times, the Nigerian equities market again rode on the back of capital appreciation in a number of mid/large cap stocks such as; DANGSUGAR (+403bps), GUARANTY (+339bps), JBERGER (+125bps), ZENITHBANK (+112bps), WAPCO (+100bps), UBA (+81bps), MTNN (+78bps) and DANGCEM (+77bps).

Fixed Income: With the market ending the week on a tepid note, we expect sentiment in the market to remain mixed amid a lack of interest and limited liquidity, as global investors continue to remain risk averse due to rising COVID cases around the world.