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The Market Today - 27 March 2019

MPC calls for rebasing of Nigeria’s GDP

The CBN governor mentioned at yesterday’s MPC meeting that some committee members called for the rebasing of the nation’s GDP in order to reflect the current prices and economic structure of the country. The National Bureau of Statistics last rebased the GDP in 2013, adopting 2010 as the new base year, an update from the 1990 base year figures. The rebasing exercise at the time was particularly paramount given the substantial development and structural evolution the Nigerian economy had undergone at the time, highlighting the need to capture underreported sectors such as telecommunications, the film industry and e-commerce. The resulting c.90% increase in GDP figures moved Nigeria from the second largest to the largest economy in Africa and 26th largest in the world. Ideally, in line with international best practices and recommendation of the UN Statistical Commission, GDP rebasing/re-benchmarking exercises should be carried out every five years to reflect changes in production and consumption pattern. More importantly for Nigeria, the exercise becomes more significant to reflect changes in the overall price structure of the economy, relative prices of commodities as well as production patterns. This follows the sizable cost escalation in the period as well as the economic downturn witnessed in 2016.                                                   

ASI moderates 1bp amidst mixed session                                                           

Whilst the equity market closed further in the red yesterday, sell-offs moderated from the previous day’s losses, with the ASI losing a mere 1bp after a mixed market session. However, market activity weakened, with turnover at ₦1.7 billion and only 144 million units of shares traded. Market breadth remained negative with 17 advances to 23 declines. Whilst we expect underlying market sentiment to remain largely mixed, we expect the MPC decision to reduce rates to spur mild interest in the market, leading to a positive close today.                                                           

Stock Watch: ETI lost 3.33% yesterday to close at ₦167.0, its lowest price since July 2017. The stock has posted a year-to- date loss of 7%, underperforming the Banking sector (+3% ytd).       

Bond market turns bearish ahead of March auction                                                       

Once again, the CBN refrained from conducting an OMO auction yesterday. Meanwhile, the Interbank Call rate declined 600bps to settle at 16.43%. We expect the MPC decision to reduce the MPR by 50bps to spur buying activity in the bond market today. That said, activity should be tampered by the March Bond Auction, where the DMO would be offering ₦100 billion across the 5-year, 7-year and 10-year bonds. Meanwhile, we foresee a trickle-down effect from the bond space causing yields to decline in the long-dated maturities in the t-bills market.