FREE

The Market Today - 29 January 2019

Executive Order 007: private sector financing of infrastructure

Last Friday, President Muhammadu Buhari signed an executive order aiming to incentivize road construction & rehabilitation by the private sector. The order, billed as the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme allows for collaborative participation and guarantees full recovery of project cost by allowing the participants claim the total cost as a tax credit to be utilized over a number of years. The tax credit can also be sold or transferred to a third-party subject to fulfilment of certain criteria. With infrastructure deficit pegged at about $17 billion annually and expected to grow to $878 billion in 2040, we believe that private sector participation is necessary to bridge this gap. Currently, 19 road projects have been approved for execution by six major manufacturing and construction firms, the first companies to officially take advantage of the scheme. Should the projects prove successful, they could encourage other companies to begin similar projects in the coming years which would improve Nigeria’s infrastructure.

Market declines as sectors record losses                                        

The Nigerian Bourse recorded a 26bps loss yesterday, after poor performances in three of four key sectors. Notably, trading activity regressed, posting lower than average market turnover. Market breadth turned negative with 14 advances and 29 declines. Despite the tepid investor sentiment exhibited in the market yesterday, we foresee more bargain hunting in today’s session as investors continue to take positions ahead of the upcoming polls. Thus, we expect a mixed trading session with a positive tilt.                                        

Stock Watch: In its fifth consecutive session, ZENITHBANK advanced 196bps yesterday to settle at a year-high of ₦23.45, bringing its year-to-date return to 2% (Banking sector: 1%)            

Fixed income market records a mildly positive day                                               

Yesterday, the CBN sold ₦57 billion at an OMO auction (₦120 billion offered) across the 87DTM, 192DTM and 360DTM bills at stop rates of 11.90%, 13.50% and 15.00% respectively (effective yields: 12.25%, 15.53% and 17.60%). Amidst the mop up, the Interbank Call rate advanced 399bps to settle at 16.07%. We anticipate a tepid trading session today as the CBN continues with aggressive liquidity tightening. On the other hand, we expect to see mild sell-offs in the bond space as investors prepare for the bond auction tomorrow.