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Breakfast Report - 07 December 2020

Last week started with demand pressures at the parallel market, weakening the Naira to N500/$. In a bid to improve foreign exchange supply at the window, the Central Bank of Nigeria directed International Monetary Transfer Operators (IMTOs) to fund agent banks’ correspondent accounts, which will be responsible for final payments to beneficiaries. True to the CBN’s expectations, the move by the Bank eased the pressures on the Naira in the parallel market, resulting in a ₦30 appreciation. The policy by the CBN could provide short-term relief to the Naira as improved economic activity in advanced economies buoy remittance inflows. On the flip side, the continued expansion in the country’s manufacturing sector - as reflected in November's PMI numbers - could translate to pent-up demand for raw materials by manufacturers. This, alongside seasonal demand pressures by consumers, could continually mount demand-side pressures at the parallel window, limiting the policy's moderating impact on the Naira exchange rate in the near term.

Equity: It was a relatively quiet session on Friday, as investors remained on the sidelines. Crosses in DANGCEM, UBA, and STANBIC boosted market turnover, which would have closed lower otherwise. We believe, as prices continue to decline, investors on the sidelines will begin to take position, in fundamentally sound stocks with attractive dividend yields as rates in the fixed income market continue to decline.

Stock Watch: Following an 875bps gain in the counter, AIRTELAFRI was a top performer on Friday. The share price of the Telecoms company has seen consistent patronage in recent sessions as the stock has gained over 56% MTD alone and is up 114.12% YTD. With the announcement that the company has started operation as Payment Service Bank (PSB), investors took this as a positive for the company and have been taking positions in the counter.

Fixed Income: We expect investors to monitor the developments in the macro space before executing their trading strategy in this week. In addition, the buoyancy of system liquidity could influence activity levels in the market