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Breakfast Report - 06 August, 2018

The World Bank recently reiterated its 2.0% y/y real GDP growth expectation for Nigeria in 2018 (IMF: 2.1% y/y; Vetiva: 1.9% y/y) - an improvement from the 0.83% recorded in 2017 - backed by healthy oil prices. However, the Bank highlighted an over-reliance on oil and a struggling power sector as impediments to long-term growth, indicating the importance of further economic and fiscal diversification in order to unlock Nigeria’s growth potential. Furthermore, despite Nigeria’s debt-GDP ratio of 20% still below the 56% threshold for its peers, the Bank once again warned about the dangers of high debt servicing costs. We note that the government’s shift to external borrowing is aimed at addressing the high cost of borrowing in the local markets, although it introduces another debt danger in the event of material currency depreciation.                                                                                                                

Equity: The ASI drew to a -52bps close on Friday and a -37bps w/w close as losses were observed in blue chip stocks once again. The Banking and Consumer Goods sectors were the major drivers of the negative activity. With large-cap stocks constantly under pressure throughout last week, and a slowdown in earnings releases, we foresee a tepid start to this week as market sentiment remains soft.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Stock Watch: WEMABANK has lost 10% in the last eight sessions. The stock is still outperforming other banking stocks – returning 32.69% ytd compared to the -2.89% ytd banking average - and is the third best performing banking stock.                                                                               

Fixed Income: Amidst tightened system liquidity we expect mixed sentiment to persist in the fixed income space today, we however cannot rule out the potential of bargain hunting on bonds this week.