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The Market Today 02 January 2019

A brief look at the year ahead                                                   

Nigeria faces a challenging economic environment in 2019 against the backdrop of weaker commodity prices, prolonged capital reversals, tepid investor sentiment, and geopolitical uncertainty. Despite these, we expect the Nigerian economy to accelerate in 2019 and project GDP growth of 2.7% y/y in our base scenario. This is driven by continued recovery in the manufacturing and services sectors as well as higher expected aggregate demand on the back of likely election spending and a potential minimum wage hike. The key economic headwinds in 2019 are currency volatility, policy instability and severe fiscal strain due to excessive government spending. Notably, we project a mild depreciation of the naira to NGN390/USD as it is apparent that the naira is trading above its market value and has been supported by the CBN via its external reserves.  Furthermore, we expect an elevated yield environment in 2019 due to rising global interest rates and consequent capital outflows, investor jitters caused by the elections, rising inflation and tightening monetary policy and expect similar factors to also drive the equity market. We foresee a post-election boost to the market but expect overall performance to remain soft due to underlying economic conditions. Overall, our equity market return expectation is in the range of -5% to +5%.                                                               

Year ends slightly upbeat even as ASI closes -17.81% YTD                                                            

The NSE ASI closed the last day of 2018 in the green, gaining 127bps to take the gains for December to +180bps, the first positive m/m close since June. That said, the ASI still fell 18% this year, dragged by losses in 9 of 12 months. Market breadth remained positive with 32 advances and 17 declines. As the year turns, we anticipate further positive activity as investors continue to take advantage of depressed stock prices. Thus, we foresee another positive session when trading resumes.                                                             

Stock Watch: CCNN was the best performing stock in 2018, gaining 104% YTD and closing the year at ₦19.40. However, the stock closed 38% below its year-high of ₦31.35 which was achieved in July.                  

FI market ends 2018 with a whimper                                                    

"The CBN sold ₦19 billion (₦220 billion offered) in an OMO auction on Monday across the 94DTM, 185DTM and 346DTM bills at stop rates of 11.90%, 13.50% and 15.00% respectively. A special OMO was also conducted, selling ₦135 billion on the 346DTM bill. We expect further interventions from the CBN to keep liquidity tight on Wednesday. Despite this, we foresee sparks of demand across the FI market as traders begin to take positions to start the new year.