Breakfast Report - October 28, 2019
The Central Bank of Nigeria (CBN) issued a circular on October 23, 2019 effectively barring all local corporates and individuals from investing in Open Market Operations (OMO) auctions. The director of the Financial Markets Department, Angela Sere-Ejembi went on to state that participation of the financial institutions at the auction should be on a proprietary and non-proprietary basis. With the circular restricting local investors from participating in auctions, this could boost foreign inflows, as foreign investors and banks are the only participants allowed at the auction. However, this new circular further raises concerns about the CBN’s lack of clarity on its policy direction. With a smaller pool of participants at the OMOs, this will push yields lower given the fact that individuals now have no choice but to invest in the secondary market. The apex regulator appears to be positioning itself to protect the Naira against dwindling reserves, amid a weakening demand for the nation’s bonds. Nigeria continues to combat a weak economy as well risk-off sentiment on emerging markets by foreign investors, should Brent prices remain sticky around $60/bbl, the CBN’s attempts to defend the currency could become more intense.
Equity: With most mid/large cap stocks shedding part of their market value WTD, we expect trading session next week to come in better as investors take position in some fundamentally sound stocks.
Stock Watch: Investors once again reacted negatively to the release of Q3'19 earnings for GUINNESS, which lost 18.74% for the week. GUINNESS subsequently trade at a significant discount of 91.40% to its all-time high price of ₦277.30.
Fixed Income: In the T-bills space, we expect a negative session at the start of the week, as market participants appear to be uncertain over the policy direction by the CBN. In the bond space, we expect the market to trade in a positive session, as the current policy direction by the CBN should lead to an increase in participation in the bond market.
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