November 5, 2020/InvestmentOne Report

Please click to view the October 2020 Macro & Markets Update

·        In the month of October, oil prices came under more pressure as COVID-19 cases continued to increase in Europe and US. This forced countries like France, Germany and UK to embark on another lockdown in order to limit the spread of the virus. 

·        Central Bank of Nigeria (CBN) published Nigeria’s Purchasing Managers Index (PMI) report for Oct-2020. According to the report, economic activities remained contractionary during the survey period.  

·        Going forward, we believe the issues around weak oil output and price, FX illiquidity, low consumer demand and the effects of recent social unrest in the country may continue to limit the recovery in the nation’s economy.

·        The National Bureau of Statistics (NBS) released the inflation report for the month of September-2020. Notably, the headline rate rose from 13.22% y/y in August-2020 to 13.71% y/y, the highest since March-2018.  

·        The food sub-index rose by 16.66% y/y in Sept-2020 from 16.0% y/y in Aug-2020. Food prices increased 1.88% m/m (vs. 1.67% in August).  

·        Looking ahead, we reiterate that the outlook for the headline inflation rate remains biased to the upside for the rest of the year despite the suspension of the recent increase in electricity tariffs. 

·        In the outgone month, we received updates on the 2021 budget, as President, Muhammadu Buhari presented it to the members of the National Assembly. Elsewhere, we witnessed oil price showcase high levels of volatility stoking further worries on the country’s budget implementation success. Finally, FAAC disbursements for the month of September 2020 came in 6.2% lower m/m.

·        During the outgone month, liquidity in the money market remained at high levels with average Open buy back and Overnight rate declining by 135bps and 153bps to 1.89% and 2.59% respectively.

·        Going forward, we see yields in the fixed income space remaining at depressed levels as we see continued interests from the local portfolio managers given limited investment opportunities and elevated risk in the variable income assets.

·        The decline in OMO rates may serve to deter FPI interest especially given the concerns over the stability of the naira in the near future.

·        In the outgone month, Brent crude price trended lower as it lost 9.7% to close the month at US$37.46/barrel. This was on the back of rising COVID-19 cases in the U.S. and Europe, where governments are resorting to the imposition of lockdown to curb the spread of the virus.  

·        In the local scene, FX reserves closed the month flat, as it inched down slightly by 0.08% to US$35.69billion.

·        Going forward, on the back of the Apex banks renewed participation in the FX market; we expect stability in the Naira in the near term.  

·        The Nigerian equities market recorded a stellar performance in October, as the NSE-ASI advanced by 13.79% m/m to close at 30,53.69pts, a new 52 week high. 

·        The buy interest has  been  further supported by relatively solid earnings performance of major companies on the bourse, the expectation of sustained dividend payments and lower interest rates propping up valuation of quality names.  

·        In the same vein, annualised returns (dividend yields) on some quality names look more attractive for investors who are willing to invest with a medium to long-term horizon and presents disincentive for profit taking in the short term