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Breakfast Report - July 08, 2019

The Week Ahead                                                       

President Muhammadu Buhari finally signed the Africa Continental Free Trade Agreement (AfCFTA) on Sunday in Niamey, Niger Republic at the 12th Summit of the African Union. Nigeria is now the 53rd country to sign on. However, whilst the President has assented, the agreement will have to be ratified by the National Assembly to validate it. So far, only 26 countries have ratified the agreement, and once all the signatories deposit instruments of ratification, the AfCFTA would become the largest free-trade zone in the world, with a population of 1.3 billion people. However, with the agreement valued at $3 trillion, it is dwarfed by the European Union, which has an $18.8 trillion economy (in nominal terms) despite a population size of 550 million. Intra-regional trade between African nations, accounted for 17% of exports in 2017, compared with 59% in Asia and 69% in Europe.  According to the IMF, the elimination of tariffs on most goods, should increase trade in the region by 15-25% in the medium term. However, challenges remain for the successful implementation of the agreement; insufficient and decaying intra-Africa transport infrastructure, corruption and insecurity. Meanwhile, Nigerian stakeholders have raised concerns over dumping of lower priced goods into the country, a likely consequence of a free-trade agreement across an unbalanced region.                                                            

Equity: As some listed companies begin to enter their closed periods this week, we expect cautious investor interest to trickle back into the market. We believe our macro fundamentals remain positive, but the lack of policy direction will still weigh on the market. Therefore, we expect sideways trading to persist in the market this week.                                                         

Stock Watch: CONOIL gained 9.93% at the end of trading on Friday, after it was announced by the NSE that the suspension placed on the company’s shares, due to the company’s delay in making regulatory filings, had been lifted. The stock reached a year-low of ₦20.10 in May but has since gained 18.4%.                                                   

Fixed Income: With liquidity remaining at healthy levels, we expect demand in the T-bills space to remain strong at week open. Meanwhile, in the bond space, we expect investors to continue to favour longer-dated bonds.