The month of August has come and gone and as expected the stock market ended the week on a negative note. For the first time since April, the All Share Index, closed on a negative note after stocks slipped by 0.98% month to date. In fact, apart from the NSE 30 index, all other sub-indexes posted losses for the month of August. It’s important to note that the month of August has traditionally ended negative for Nigerian stocks, gaining only once in about 12 years.
On the macro-economic front, the National Bureau of Statistics reported that Nigeria’s inflation rate for the month of July 2017 was 16.05% maintaining its 6th month streak of a drop in year on year inflation rate. The bureau also reported that Nigeria’s capital importation for the second quarter of 2017 was $1.79 billion compared to $908m.
Another good news we got from the data standpoint was that of the Purchasers Managers index. The index is also up 53.5%, the fifth consecutive month above the 50 point benchmark, indicating that confidence is getting restored in the manufacturing sector.
Not a lot occurred this month on the macro-economic front, except of course the return of President Buhari and the controversy trailing the appointment of top executives of the NNPC.
The week ahead
The National Bureau of Statistics will be releasing it second quarter GDP report on Tuesday. The much awaited reported is likely to confirm that Nigeria is now out of recession. If the report does indeed confirm that Nigeria is out of recession, then we would expect to see a rash of boisterous statements from the APC government. More importantly, the news would likely be welcomed by the international community, particularly portfolio investors, who have been waiting on the sidelines to see if the macro trends does reflect growing optimism in the country. If this week will go down as one of the most significant this year, then the GDP report will be key to that.
The earnings season is well and over and I believe profit taking is now at its tail end. As indicated above, any positives from the GDP report will be passed on to the stock market. If we post a stronger that expected GDP growth rate, like 2%, we won’t be surprised to see another bull run. Focus will have to be on blue chip stocks in the financial sector, consumer goods and industrial sectors. The oil and gas sector could also feature on the list of targeted stocks for investors.
Dividend payments will be made by Red Star Express, Custodian and Allied Insurance and GT Bank this week. If you are a shareholder in these companies then expect to get an alert from your bank.
The naira closed last week relatively stronger after it closed at N366 from an open of N370 to the dollar. We expect the naira to trade at these levels this week as more Nigerians return from the holiday and pilgrimage. More influx from foreign portfolio investors, in the wake of the GDP report, could also strengthen the exchange rate in the NAFEX window.
Lending rates are expected to remain at double digits despite the drop in inflation rate for the month of July 2017. Commercial banks still have one eye at treasury bills and OMO yields which closed 19% for the week. Banks are also hesitant to extend loans and we do not expect news (even if positive) to change the way banks view risks in the economy.
As expected, President Buhari, last week, presided over is first Federal Executive Council meeting in over 3 months. The meeting was held on August 30 with the $5.792 billion 3,050 megawatts Mambilla Hydro-Power project at Gembu in Taraba, approved for construction. Another meeting is expected this week, so we should look forward to more approvals from the President. We should expect to get more clarity on expired oil licenses, rail projects and funding for the natural disaster in Benue State.
There is fear that the latest missile testing by North Korea could spook global markets. Already, the US has responded with harsh words but there seems to be cautious optimism that economic interest will entrench reasoning.