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Breakfast Report - 15 May, 2017

The Week Ahead
According to the Statistician-General of the Federation, Dr Yemi Kale, foreign investment into Nigeria topped $1 billion in the first two months of 2017. In comparison, total foreign investment in the country was $711 million in the corresponding period of 2016 as a fixed exchange rate and dollar scarcity raised investor concern over return on and of capital. It is likely that improved economic sentiment and foreign exchange (FX) liquidity – both driven by a rebound in federal oil earnings – have sparked some foreign interest in Nigerian investment. However, Dr Yemi Kale was silent as to whether he had included the $1 billion Eurobond sale in February as Eurobonds are usually included in capital importation statistics. Nevertheless, we expect foreign investment in 2017 to surpass the dismal 2016 numbers (2016: $5.1 billion, 2015: $9.6 billion) as the expected economic recovery and improved FX liquidity buoy investor confidence. In particular, we highlight the important role of the new NAFEX window for investors and exporters in galvanizing foreign participation in Nigerian markets.

Following a 10-session bull run, the Nigerian bourse slipped 81bps at week close (ASI up 746bps w/w – 2017 high) as profit takers swooped in. Nonetheless given the strength of the gains, the NSE All-Share Index ytd return turned positive for the first time in 2017 at mid-week, posting a 490bps return ytd. The Consumer Goods sector (+13.36bps w/w) stretched its win streak to five sessions, buoyed by sizeable gains in PZ (+959bps) and NB (+433bps). However, gains in the Banking (+11% w/w) and Oil & Gas (+274bps w/w) sectors slowed at week close to 12bps and 3bps respectively after advances in ETI (+414bps) and SEPLAT (+428bps) were tapered by losses in ACCESS (-257bps) and OANDO (-964bps). Despite underperforming at week close, the Industrials sector (-247bps) held on to previous gains to close 40bps higher w/w.

Given that the ASI was almost solely dragged by losses in DANGCEM today and the key drivers of the rally (improving macro conditions, increased PFA and FPI participation) have not faded, we expect the NSE ASI to trade in the green in the coming week.

Stock Watch: After notching 152bps today, GUARANTY currently trades at an over one-year high of ₦30.00. The stock is on a five-session gaining streak and has returned 21.46% ytd.

In the Fixed Income Market, as bullish momentum in the bond market cooled at week close, we expect more tepid trading at the start of the week. We also expect cautious trading on bills at the start of the week as market participants anticipate April inflation figures, due on Tuesday.