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Breakfast Report - 06 February 2017

• After a minor spike in Q3’16 ($1.82 billion), total capital imports into Nigeria were 15% lower in the final quarter of 2016 ($1.55 billion). The Q4’16 figure is roughly flat year-on-year (y/y), primarily as a result of a very low base in Q4’15 ($1.56 billion) when quarterly capital imports dipped below $2 billion for the first time since 2011. The composition of capital imports changed significantly during the review period: foreign portfolio inflows (FPI) sank to $284 million (Q3’16: $920 million) and were overtaken by Other Investment – totaling $920 million from $561 million in the previous quarter – as the largest source of capital imports. The final major category Foreign Direct Investment (FDI) maintained its modest quarterly level of $345 million (Q3: $341 million). Looking at the picture for the whole year, capital inflows are down markedly, declining from $9.62 billion in 2015 to $5.12 billion in 2016. Uncertainty over FX policy and persistent devaluation risk provided strong disincentives for capital inflows during the year. The preservation of the FX market status quo may encourage some risky or temporary flows, but clarity and visibility in economic policy and strategy are required to spur a material and sustainable rebound in capital inflows. As such, we expect capital inflows to remain insignificant compared to oil earnings and remittances during the year.
• The Nigerian bourse traded bearish last week, shedding 200bps amidst a number of downbeat earnings releases. Also, market breadth was negative with 23 advances and 42 declines for the week. In a sharp contrast to the preceding week, the Energy sector tarried in the red all-week, as investors took profit on recent price appreciation. The Consumer Goods sector also traded lower amidst a stream of disappointing earnings releases. However, the Industrial Goods sector notched the lone gain of the week, as a spike in WAPCO and market heavyweight DANGCEM at mid-week lifted the sector’s ytd return into the green. Wrapping up the bearish week, the Banking sector pared some of its ytd gains, as it lost 281bps, pressured by declines in DIAMONDBNK, ZENITHBANK and GUARANTY.
• Overall market sentiment remains quite bearish and inclines us to expect a weak open for the NSE ASI this week.