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Breakfast Report - 15 January, 2018

The Week Ahead                                                                            

The Nigerian Equity Market started 2018 at breakneck speed, notching 12% in the first two weeks of the year. Notably, trading activity has also spiked, with average volume and value traded of 825.4 million and ₦9.8 billion, compared to 2017 levels of 328 million and ₦3.6 billion respectively. Investor confidence has remained buoyant, likely driven by relatively strong oil prices (2018 average ytd: $68 vs. 2017 average: $53), rising external reserves and a feel-good effect from the Nigerian bourse being the second-best global performer in 2017. We also hold the view that Pension Fund Administrators (PFA) have moved early to ramp up their equity allocations in line with the National Pension Commission guidelines. We still expect market performance for the year to be heavily tied to the expected improvement in the macro economy. Going further, while we expect positive oil market dynamics, we anticipate a slight retreat in oil prices in the medium-term and foresee this slightly dampening market sentiment. Moreover, we anticipate a slight slowdown in activity as PFAs reach their desired equity thresholds. Also, the 2019 elections dampen our optimism a bit as we foresee some investors taking to the sidelines. Overall, we still see value on the exchange despite gains recorded so far and whilst market momentum is likely to slow in the near term, we expect the market to notch even stronger gains by the end of the year.                                                                     

Despite a sharp reversal in the positive trend last Friday as the NSE ASI lost 33bps, strong closes earlier on in the week led to a 10.21% gain w/w. Notably, all sectors closed in the green w/w. With the market turning negative towards the end of the session on Friday, we foresee mixed trading today as profit taking offsets residual buying sentiment.                                                                         

Stock Watch: HONYFLOUR was the top gainer last week – up 40% and also the best performing non-banking stock this year. The stock currently trades at ₦3.52 and has returned 67.0% ytd.                                   

Whilst we foresee modest demand at today as investors continue to lock in rates, we expect inflation figure due on Tuesday to dictate market sentiment for the rest of the week. We are cautious on the release of the Q1’18 bond calendar but expect lower bond supply in the near term in line with the FG borrowing strategy. Thus, we expect bond yields to continue southwards.