October 3, 2018/InvestmentOne Report
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· In the outgone month, business sentiment remained positive as the purchasing managers’ Index for the month of September 2018 showed expansion in the manufacturing and non-manufacturing indexes for the 18th and 17th month respectively. The report indicated growth in manufacturing PMI at 56.2pts and non-manufacturing PMI at 56.5pts in the month in review, albeit slower than the preceding month.
· The Federation Account Allocation Committee (FAAC) shared a sum of N741.8 billion generated in August 2018. The allocation indicated a significant rise of N27 billion compared to the previous month’s allocation of N714.8 billion. We are of the opinion that the prompt disbursement of funds should go a long way in reducing the occurrence of unmet worker salary obligations and boost consumer demand.
· The Central Bank of Nigeria (CBN) continued its intervention into the foreign exchange market, and this pressured FX reserves to a 3.25%m/m decline to US$44.38 billion. Going forward, we may continue to see increased pressures on the FX reserves following the US Fed’s hike in rates to 2.00%-2.25% and the signal towards maintaining a hawkish stance into 2019.
· In the penultimate MPC meeting, which held on 25th September 2018, the committee voted to hold its MPR at 14%. With headline inflation on the rise, we expect yields in the secondary market to remain high as the CBN takes on a tighter monetary policy through its Open Market Operations.
· In our opinion, we believe the equity market is still weak due to factors such as the increasing U.S treasury yields. In anticipation of more rate hikes by the U.S Fed as well as investors’ scepticism around the country’s 2019 election. However, the recent sell-off, which has restored attractive upsides on our top picks, presenting a decent entry opportunity for investors with a medium to longer term horizon.