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ECONOMIC & FINANCIAL MARKET ROUNDUP
Saturday, March 02, 2019
Economy ‖ Equity ‖ Money Market …Financial Possibilities
ECONOMIC REVIEW Nigeria’s lopsided GDP growth pattern magnified by Income and Expenditure approach estimates Over the past two weeks, the attention of all Nigerians and the international community
was largely focused on the presidential election which took place last Saturday and won
by the incumbent, Muhammadu Buhari (GCFR). While it is set that the ship of the Nigeria
economy will be sailed by the incumbent for another four years (in the absence of any
upset), a major issue that needs to be tackled headlong by this administration is the lopsided
nature of the Gross Domestic Product (GDP) growth pattern.
Our analysis of the Income and Expenditure approach estimates of Nigeria’s GDP report
for Q1 and Q2 2018 revealed that though Nigeria’s real GDP grew by 2.04%y/y and
1.46% y/y in Q1 and Q2’18, the growth were largely non-inclusive in nature.
According to the data released this week by the National Bureau of Statistics (NBS), the
Expenditure approach shows that while Final Consumption Expenditure of General
Government and Gross Fixed Capital Formation grew in both periods relative to prior year,
Final Consumption Expenditure of Household and Net Exports exhibited a disturbing trend.
Final Consumption Expenditure of General Government (which mostly accounts for 5-8% of
Nigeria’s GDP) grew by 13.83% and 33.71% in Q1 and Q2’18 respectively, while Gross
Fixed Capital Formation – which indicates new investment in fixed assets by business
sector/government improved from a growth rate of 0.01% in Q1’18 to 7.36% in Q2’18.
However, Final Consumption Expenditure of Households (the largest component of the GDP)
which reflects improvement/otherwise in purchasing power of the average population
contracted by 0.25% in Q1’18 (relative to 5.41% growth in Q1’17), but expanded
moderately by 0.78% in Q2’18 (relative to 0.97% growth in Q2’17), while Net Exports
which grew by 7.23% in Q1’18 contracted by 8.3% in Q2’18 (relative to 18.26% in
Q2’17).
Our take: We believe the growth in Final Consumption Expenditure of General Government is not
unconnected to the increased security spending (mostly on insurgent and herdsmen crises), while the
increase in Gross Fixed Capital Formation could be partly attributed to payment of contractors
handling a number of ongoing capital project across the country. However, the contraction/sluggish
growth in Final Consumption Expenditure of Household for a nation that adds 7 million new births
annually (according to UNICEF) pose a serious threat in the long run, as this could undermine the
effect of all the spending on security and infrastructure if peoples’ wellbeing is taken for granted.
Hence, we recommend that government should implement policies that simultaneously impact every
component of the economy in order to achieve a more inclusive growth.
Secondly, we believe the contraction in Net Export in Q2’18 was mainly driven by the loss of
195,000 barrel per day in crude oil production to the shutdown of Nembe Creek Trunk line for
repair over the period. Going forward, we believe Net Exports performance pattern will continue its
disturbing trend until Nigeria’s export earnings is no longer dominated by crude oil sales.
From the Income approach estimate, the data revealed that National Disposable Income
(NDI) which measures all the income available for use by residents and firms in Nigeria
initially grew by 0.26% in Q1’18, but contracted by 1.98% in Q2’18, while National
Operating Surplus and Net Other Current Transfers from Rest of the World contracted in
both quarters. National Operating Surplus which reflects the profit of firms after covering
all cost fell by 2.47% and 3.44% in Q1 and Q2’18, while Net Other Current Transfers
from the Rest of the World compressed by 7.59% and 22.7% in Q1and Q2’18
respectively. However, Compensation of Employees, which consists of total remuneration of
employees in the formal sector, including wages and salaries and other benefits (e.g.
pensions) maintained its historical growth trend, expanding 14.71% and 15.33% in Q1
and Q2’18 periods respectively.
Our take: We believe the contraction in National Operating Surplus (profit of firms) could be
largely attributed to high cost operating environment, weak consumer demand and multiple taxation
on businesses by government agents; while the contraction in Net Other Current Transfers from Rest
of the World could be attributed to the high yield environment in the U.S., which prompted capital
flow reversal from many emerging markets including Nigeria over the reviewed period. Going
forward, we recommend that government should re-engineer its policy tool to reduce its stifling effect
on business profit margin and provide critical infrastructure (e.g. electricity) to reduce business cost
of operation. This we believe will have positive and sustainable spill-over effect on the entire economy
in the long-run.
Source: NBS, GTI Research
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EQUITY MARKET REVIEW
The Nigeria equity market this week closed three of the five trading session’s negative.
This was partly driven by low market upbeat in the aftermath of the highly tensed
presidential election and the drift of foreign inflows to the fixed income segment. As such,
the All-Share Index (ASI) and Market Capitalization value fell by 2.12% w/w to close at
31,827.24 points and ₦11.87 trillion respectively as against 32,515.52 points and
₦12.13 trillion in the previous week. In monetary terms, this translates to a week-on-week
decline of ₦256.67 billion in the Market Capitalization, while the ASI Year-To-Date (YTD)
index declined from 3.45% last Friday to 1.26%.
On week-on-week basis, two sectors – Insurance (+3.0%w/w) and Industrial goods
(+0.9%w/w) recorded gains, while loses were recorded by Banking (-5.9%w/w),
Consumer goods (-2.9%w/w) and Oil & Gas (-0.24%w/w) sector.
LIVESTOCK led other top gainers this week; appreciating by 17.24%w/w, while
JAPAULOIL shed 12.00%w/w to emerge the top loser.
Overall, a total turnover of 1.75 billion shares worth ₦19.68 billion in 22,314 deals were
traded this week by investors on the floor of the Nigerian exchange in contrast to a total
of 1.48 billion shares valued at ₦17.65 billion that exchanged hands last week in 20,440
deals. A total of Twenty-nine (29) equities appreciated in price this week, lower than
Thirty-one (31) equities in the preceding week. Thirty-one (31) equities depreciated in
price this week, lower than Thirty-nine (39) equities in the preceding week, while One
hundred and ten (110) equities remained unchanged, higher than One hundred (100)
equities recorded in the preceding week.
Market Outlook: Week ending March 8, 2019
With presidential election concern out of the way, we anticipate portfolio restructuring by
many investors in the coming week. Hence, we expect the overall market sentiment to
improve gradually as investors begins to take position for long term benefits.
MONEY MARKET
The apex bank this week floated OMO and Treasury bills to keep system liquidity at bay.
At the Treasury bills auction on Wednesday, the different tenor offered – 91-days
(₦24.37bn), 182-days (₦38.75bn) and 364-days (₦51.99bn) were met with higher
demands, as bid-to-offer rates printed at 1.7x, 2.0x and 11.8x respectively. The higher
demand was partly due to robust system liquidity, driven by inflows from matured
Treasury bills (₦115bn), OMO bills (₦349.6bn) and FAAC allocation of ₦610.37bn to
the various tiers of government. As such, average yield across the end of the curve
compressed by 80bps w/w to 13.3% from 14.1% last Friday.
Thereafter, the CBN during its OMO auction exercise on Thursday further mop-up
₦1.07trn from the financial sector to net-off the new inflows.
Consequently, system liquidity indicators, Overnight (O/N) and collateralize Open-Buy-
Back (OBB) rates which closed the previous week at 20.25% and 18.83% respectively
fell to close for this week at 17.42% and 16.33% respectively.
At the short-end; i.e. NIBOR, 30-day, 90-day and 180-day rates closed at 10.66%,
11.20% and 13.92% respectively compared to 11.63%, 12.84% and 15.27% recorded
in the previous week.
We expect inflows from maturing OMO bills to the tune of ₦229.6bn in the coming week to
boost system liquidity. However, be believe the CBN will likely take a position for a mop-up.
FOREIGN EXCHANGE MARKET
The performance of the Naira against the US Dollar was mixed at the different exchanges
this week. The official rate fell 0.02% to close the week at ₦306.85/USD as against the
previous week closing rate of ₦306.80/USD, while the pair gained 0.13% at the I&E FX
window to close the week at ₦361.03/USD as against ₦361.49/USD last Friday.
The foreign reserves balance this week also fell by $320 million from last week closing
level of $42.63 billion to $42.31 billion; while Brent crude oil future fell by $2.28 w/w
from $67.63pbl last Friday to $65.35pbl this Friday.
Source: NSE, GTI Research
Source: FMDQ, GTI Research
Source: FMDQ, CBN, Oilprice.com, GTI Research
₦0.58₦0.21
₦4.40
₦0.61 ₦0.31
₦0.68
₦0.24
₦4.84
₦0.67
₦0.34
17.24%
14.29%
10.0%
9.84%
9.68%
0
5
10
15
20
25
Best Performing Stocks For The Week
Week Opening Price Week Closing Price % Change
₦0.25₦0.84
₦6.40₦2.47
₦1.45
₦0.22
₦0.74
₦5.70
₦2.20
₦1.30
-12.00% -11.90% -10.94% -10.93% -10.34%
-5
0
5
10
15
20
Worst Performing Stocks For The Week
Week Opening Price Week Closing Price % Change
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DISCLOSURE
Conflict of Interest
GTI Securities Ltd and its sister companies within the GTI Group may execute transactions in securities of companies mentioned
in this document and may also perform or seek to perform investment banking services for those companies mentioned herein.
Trading desks may trade, or have traded, as principal on the basis of the research analyst(s) views and report(s).
Analyst Certification
Where applicable, the views expressed in this report accurately reflect the analysts' views about any and all of the investments
or issuers to which the report relates, and no part of the analysts' compensation was, is, or will be, directly or indirectly, related
to the specific recommendations, views or corporate finance transactions expressed in the report.
Disclaimer
This report by GTI Securities Ltd is for information purposes only. While opinions and estimates therein have been carefully
prepared, the company and its employees do not guaranty the complete accuracy of the information contained herewith as
information was also gathered from various sources believed to be reliable and accurate at the time of this report. We do not
take responsibility therefore for any loss arising from the use of the information.
For enquires/research queries, please send an email to [email protected]
Analyst
Damilare Asimiyu | +234 806 0722 944
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