Breakfast Report - 21 January, 2019

The Week Ahead                                                       

During a recent inspection of the Dangote refinery, CBN governor, Godwin Emefiele said that the apex bank would get more aggressive in ensuring that even more goods currently being imported into Nigeria are added to the forex restriction list. He added that the list may be increased to 50 items (currently at 41 items) in order to boost local production and further stimulate the export market, adding that the importation of petroleum products into the country currently accounts for about one third of foreign exchange expenditure. The list of items restricted from receiving foreign exchange from the central bank has lessened the burden on foreign reserves and has had an impact on local production, however, it has not eliminated the importation of these items entirely. While the policy has improved domestic consumption of some locally available substitutes, the unavailability of some of these items has resulted in a more difficult operating environment for businesses requiring these inputs. We believe that increasing the number of items on this list without implementing policies to improve local production would lead to further pressure on the parallel market, as well as increase clandestine importation activities, which could diminish government import revenue.                                                 

Equity: In a positive turn of events, the ASI recorded positive performances every day of last week for the first time since July 2017 leading to a 394bps gain w/w.  With positive investor sentiment returning to the market last week, we are cautiously optimistic. Whilst we expect buying momentum to fizzle out on cement stocks, we foresee some buy interest in depressed Tier I banking stocks.                                 

Stock Watch: DANGCEM gained 10% in four sessions last week. The stock gained 3% on Friday to close at ₦194.90 and is up 3% in 2019, underperforming the Industrial Goods sector (9% ytd).                               

Fixed Income: We expect the anticipated release of the bond calendar today to spur mild sell-offs in the bond space, whilst tepid trading is expected to continue in the T-bills space due to liquidity constraints. Meanwhile, trading activities this week will also be directed by the Monetary Policy Committee meeting and a bond auction scheduled for mid-week.