FREE

The Market Today - 12 May, 2017

National Assembly approves 2017 budget
Yesterday, the National Assembly signed off on the 2017 appropriation bill, a budget of ₦7.44 trillion. With the passing of the 2017 budget coming mid-2017, the pace of disbursements for capital projects will determine the impact of fiscal stimulus in the fiscal year.

Improving macro spurs market turnaround
The Nigerian Equity market is currently on a 10-day gaining streak. This is largely on the back of better than expected Q1’17 earnings, improving macro-economic environment, stronger PFA involvement, and improving foreign participation. Boosted by higher government revenue amidst relatively stronger oil prices and production volumes, we have seen improvement in the apex bank’s ability to defend the currency which has led to improved FX liquidity, which has supported company performances and consequently improved macroeconomic environment. Notably, the new PENCOM multi-fund structure recommending higher asset allocation to variable income securities (particularly equities) has led to greater PFA participation in the equity market. Consequently, the NSE ASI continues to surge and notched a ytd record high daily performance of 318bps yesterday – up 576bps ytd. We believe the sustainability of the rally depends on the level of confidence in the CBN’s FX policies and the strength of economic recovery. Nonetheless, with the new PENCOM guidelines here to stay, PFAs are likely to be more involved in the market and this should continue to support the market. Overall, we highlight that the Nigerian market remains largely undervalued, providing leeway for further bargain hunting.

Heavyweight stocks steer NSE ASI further into the green
Sentiment remained extremely bullish on the Nigerian bourse in yesterday’s session, with persistent broad-based investor bids lifting the NSE ASI 318bps. We therefore believe the NSE ASI is poised for another strong close today. However, we highlight the possibility of profit taking on some select stocks following sizeable gains.

Stock Watch: After staying flat for 5 months, the wind of gains touched SKYEBANK yesterday – up 400bps to ₦0.52. We highlight that the bank is yet to release its financial results (last release: FY’15) following the Management and Board take over by CBN.

Bulls return to bond market
With auction yields registering below market expectations, the bond market gained as yields adjusted to auction levels. Meanwhile, the bills market traded mixed with yields moving in opposite directions. With sentiment in the bills market remaining varied, we foresee continued mixed trading. Meanwhile, given the sharp adjustments – yields correcting to auction levels – recorded in the bond market, we expect reduced buying momentum across the space.