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The Market Today - 11 April 2018

Milder expectation for equities as political jitters set in
Political jitters appear to have set into the Nigerian equity market earlier than initially expected, with the ASI down 11% since reaching a 2018 pick of 17% on January 22. We had expected the first half of the year to come in strong – supported by our positive macroeconomic outlook amidst stronger oil price, improving oil production, stable FX, and better corporate earnings. Whilst the market opened to a strong rally, sentiment has since turned - cutting ytd return to 6%. Improving macro variables have so far been unable to lift sentiment in the last two months, leaving market participants in need of other catalysts. The incumbent’s decision to seek re-election and the relatively weak opposition tempers uncertainty around continuity. The implementation of the multi-fund structure for PFAs (initially scheduled for Q1’18) would naturally have been the light in the tunnel for equity at this point. However, continuous rolling deadline for implementation means the market would require other catalysts in the near term. Although we expect Q1’18 earnings to be largely positive across most sectors, we do not expect this to have much impact on trading directions. Overall, whilst we maintain our view that the Nigerian equity market remains undervalued, we expect the mixed trading to persist with a bearish bias.

Late gain from DANGCEM lifts Nigerian bourse
Despite trading lower for most of the session, the Nigerian equity market (ASI up 17bps) erased blues with a late session gain from market heavyweight, DANGCEM. With trading pattern (ex-DANGCEM) remaining largely negative, we anticipate another bearish session today.

Stock Watch: After dipping 37% over eight sessions, shares of JAPAULOIL have reversed the trend, regaining 18% over the past two sessions. We recall that the stock had been hit with negative sentiment after investors began to express concerns over the proposed investment from PE firm, Milost Global Incorporated. The stock currently trades at ₦0.53 and has returned 6% Ytd. 

Bulls sustained on healthy system liquidity
Driven by still robust system liquidity (estimated at c.₦545 billion), Interbank call rate moderated further yesterday – down 50bps to 2.83%. Also supported by liquidity, trading across the T-bills market remained largely bullish, highlighted by a 31bps fall in average yields across the space. Meanwhile, in a relatively quiet session, yields on benchmark bonds trended in opposite directions, with average yields rising a mere 1bp at session close. Barring an aggressive mop up from the CBN, we expect relatively buoyant system liquidity to support further yield declines across the Fixed Income space