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The Market Today - 16 November 2018

Nigeria set to become second largest rice importer in 2019                                                        

In contrast to FG’s plan to end importation of rice this year, the U.S. Department of Agriculture forecasts a 13% rise in rice importation for Nigeria to 3.4 million tons in 2019. The report, released yesterday, cites a combination of rapidly increasing demand as well as a fall in local production due to flooding, higher input costs and insecurity as drivers for the projected rise in imports. We highlight that Nigeria has recorded good strides in boosting rice production over the past few years through several initiatives–especially the Anchor Borrower’s Program–aimed at improving farmers’ access to credit. Notably, local production has risen over 50% in the past 5 years to 3.7 million tons in 2017, supported by these initiatives. That said, production remains tilted towards smallholder farmers and the shortfall will likely remain in the medium term unless significant investment is channeled towards the space.               

Sell-offs on Tier-1 banking stocks drive ASI lower                                                           

Losses in the market were more pronounced yesterday as the ASI dipped 76bps following stronger selling momentum in the banking space. Market breadth turned negative with 11 advances and 21 declines. With investor sentiment remaining quite bearish, we expect a negative close to the week, with little chance of bargain buying to mitigate losses.                                

Stock Watch: Sell-offs on GUARANTY intensified yesterday as the stock shed 659bps – taking its losses for the week to 9% to settle at ₦34.00. The stock has shed 16% of its value ytd, in line with the banking sector and is trailing its target price of ₦51.58.                                                                                                                  

Investors raid secondary market after OMO oversubscription                                                   

Amid an OMO repayment of ₦424 billion, the CBN held an OMO auction yesterday, offering and selling ₦450 billion across the 77DTM, 182DTM and 364DTM bills (with the long-dated paper oversubscribed by ₦15 billion) at stop rates of 11.5%, 13.0% and 14.5% respectively (effective yield: 11.79%, 13.90% and 16.95%). Following the net mop up, the interbank call rate advanced 92bps to settle at 6.67%. Given the improved appetite for bills yesterday, we foresee similar positive activity in the T-bills space. Conversely, we expect bond activity to remain mixed.