November 5, 2018/InvestmentOne Report
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· The purchasing managers’ index for the month of October 2018 came in positive; an indication of strong business sentiments. The report by the Central bank of Nigeria showed expansions in the manufacturing and non-manufacturing indexes for the 19th and 18th month respectively.
· In the outgone month, the Federation Account Allocation Committee (FAAC) disbursed the sum of N698.71billion to the three tiers of government as allocation for the month of October 2018 from revenue generated in September 2018. The allocation indicated a significant drop of N43.1 billion compared to the previous month’s allocation of N741.8 billion.
· The Central Bank of Nigeria (CBN) continued its’ intervention into the foreign exchange market, and this pressured FX reserves to a 5.24% m/m decline to US$41.99 billion. We saw the naira depreciate against the US dollar in the parallel market by 0.28% m/m to N362 as at October 31 2018.
· Although the Monetary Policy Rate (MPR) has been held at 14% by the Monetary Policy Committee, we highlight the committee’s growing concerns towards the inflationary pressures arising in the country. As such, 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 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’ skepticism 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.