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The Market Today - 26 October 2017

Strong fiscal stimulus needed to support economic growth                                                       

Amidst an expansionary fiscal drive, Nigeria’s fiscal authorities have markedly increased the nation’s annual budget for the past two years (2016: N6.06 Trillion, 2017: N7.44 Trillion) – gradually raising the portion of capital expenditure to the current c.30% (FY’15: 15%). The large infrastructural deficit in the country has necessitated the refocus on CAPEX as the government seeks to jumpstart the Nigerian economy through investments in projects with strong multiplier effect. However, looking at the traction gained last year as well as the Mid-year Budget Implementation Report for 2017, little progress has been made in terms of capital expenditure. According to the Ministry of Finance, about N366 billion had reportedly been disbursed for capital projects as at September 2017. The weak implementation can be closely linked to the late passage of the annual budgets and the delay in capital raising to fund the budget deficit. According to news media, President Buhari is set to present the 2018 Budget to the National Assembly next week Tuesday following approval from the Federal Executive Council. Sprightliness is essential from the parliaments in approval of this budget in order to ensure adequate and timely capital releases going forward. We recall that whilst Nigeria exited recession in Q2’17, GDP growth (+0.5%) came in much lower than Consensus expectation of 1.3% - largely dampened by weak performance from the Services sector. We believe strong fiscal stimulus will be necessary to spur an all-inclusive growth going forward.                                                    

Momentum remains positive – ASI up 25bps                                                    

The Nigerian equity market secured another positive close yesterday (NSE ASI: +25bps) driven by mildly positive closes across most key sectors.  Given the positive market sentiment and heightened demand for select blue chip stocks, we expect another session of mild gains on the exchange today.                                                             

Stock Watch: FIDSON released extremely impressive 9M’17 earnings yesterday, with revenue and PAT coming in 128% and 790% higher y/y. Following this, demand for the stock spiked – top gainer today: +982bps. The stock currently trades at ₦3.69 and has returned 188% ytd.                                                        

Rates at bonds PMA below secondary market levels                                                     

The CBN conducted another OMO auction yesterday, mopping up ₦6 billion on the 190DTM bill (₦50 billion offered) at a stop rate of 17.8000% (effective yield: 19.6177%), with no sale on the 92DTM bill (₦10 billion offered). Also, at yesterday’s bond auction, the DMO sold ₦3 billion and ₦97 billion (₦50 billion offer on each) across the 5-year and 10-year bonds, both at a stop rate of 15.00%. Amidst the bond auction, sentiment in the bond market was slightly bullish as yields on benchmark bonds declined 4bps on average. Meanwhile, the T-bills market remained mixed with a bearish tilt as yields advanced 5bps on average. We expect tight liquidity to further constrain buying on T-bills in today’s session. We note that whilst yields at yesterday’s bond auction were lower than previous auctions (c.15.90), they came roughly in line with secondary market levels. Thus, we expect a relatively flat session in the bond space.