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Breakfast Report - 26 October 2020

According to the Lagos Chamber of Commerce and Industry, social unrest caused by the protests against the police brutality has allegedly cost Nigeria ₦700 billion. This has resulted in the need for re-institution of curfews. The economy had already taken a 6% downturn from the coronavirus-induced lockdowns that stifled production, constrained consumption and delayed investment. Therefore, the resurfacing of curfews alongside looting of businesses and vandalization of properties could reverse the progress made after the re-opening of the economy. Manufacturing and non-manufacturing PMIs are yet to recover to pre-pandemic levels as naira weakness, fragile consumer wallets and supply chain disruptions remain. In addition, alleged threats of militant attacks on oil pipelines could stifle recovery in the oil sector, which is already constrained by cartel production limits, weak demand and low oil prices. Containment of unrests via prompt social dialogue and timely intervention would subdue risks of economic regression, even as budget execution has been premised on adequate provisions for addressing concerns of the protest and strike actions. The length of recovery from the looming recession would depend on the economic response to new challenges.

Equity: With investors cherry picking attractive counters across sectors, the ASI maintained its positive performance while neutralizing the effect of declines in the Insurance sector, even as local institutional investors continue to take positions in the market. With a number of bellwether stocks expected to release their Q3'20 results into the market this week, we expect the market to be largely directed by the expected earnings results. We also believe the unattractive yield in the FI market will continue to redirect funds into the equities market. However, due to the persistent uncertainties in the global and domestic space, a cautious trading strategy is still recommended in the short term.

Stock Watch: Following days of capital depreciation, the Banking sector recovered in Friday’s session, closing as the best performing sector with a gain of 1.69% d/d. The upward movement resulted from price increases in UBA (+368bps), UBN (+213bps), ZENITHBANK (+169bps), GUARANTY (+150bps), ETI (+111bps), FBNH (+83bps) and ACCESS (+65bps).                                     

Fixed Income: We expect the sentiment in the market to remain unchanged, as system liquidity will continue to drive position-taking across all segments of the market. In addition, with oil prices stable, investors should remain keen on the market as they monitor the on-going civil unrest across the nation. However, we note that current liquidity levels could see the Central Bank of Nigeria (CBN) come into the market to mop-up.