April 3, 2017/InvestmentOne Research

Trade ideas for the week

• We remain positive on both quality Banking and cement stocks on continued elevated interest rate regime and potential for increased government capex spending.
• We continue to sell Consumer names on pressure on disposable income and limited FX supply for input materials.
• Though we expect the ASI to remain volatile on concern regarding the weak macro backdrop, we see support to market performance from a likelihood of policy shift in the FX regime..

§  Hence, we advise investors to tread with caution and gradually build position in quality names for an extended investment horizon.

• We overweight FI instruments, as rising yields present good entry point.

Our Picks

• Dangcem, GTB, Zenith, Access and  Nestle
  

The week in review

• ASI  gained  +0.24% (24bps) w/w
• Yields on FGN bonds  inched up slightly w/w
• At the parallel market, Naira ended the week at N390/$  from N375 /$ on Wednesday reversing part of previous  week’s  gain
• IMF affirmed Nigeria Economic Recovery and Growth Plan, projected +0.8% GDP growth for 2017.

The week ahead

• NBS to publish March FAAC Disbursement data
• CBN to start bi-weekly FX sales to BDCs, increases allocation to $10,000per week
• Development Bank of Nigeria sets to commence operation this week

Thoughts for the week

• In recent weeks, CBN has increased FX sales into the market, injecting c.$2b to ease FX liquidity and narrow the gap between interbank and parallel market rates. While this step had achieved some level of success with the gain in Naira value at the parallel market, concerns remain whether this feat is sustainable.  With Brent crude oil price stable at $50pb level and Nigeria oil production rising to 1.9mbpd mark, the CBN’s ability to sustain FX supply to the market has been enhanced. However, lack of transparency in the FX market leaves much to be desired as autonomous inflows are likely to stay on the sideline in the absence of perceived price discovery. This in our view may have informed the opinion of IMF on Nigerian economy highlighting that the country’s economic outlook remains difficulty in the absence of FX regime policy change.   The Bank projected a meagre +0.8% GDP growth to be driven by recovery in oil production, as distortion in the FX market and resulting FX illiquidity would continue to constrain real sector output. In the light of the foregoing and in line with IMF prediction, we stress the current FX policy regime (regardless of the gain achieved in narrowing the spread between official and interbank market rates) remains less-than-ideal for driving economic recovery.