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Markets

Market/Economic Insight: The weekly brief ( August 20th – 24th 2018)

The performance of the Nigerian Equity Market returned bullish last week.

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Nigerian Equity Market

The performance of the Nigerian Equity Market returned bullish last week with the index (NSE ASI) up by WTD to close at 0.45% an index level of 35,426.17 and Market capitalization at N12.93 trillion.

The sectoral performance was negative as bearish sentiments were witnessed in all sectors with the exception of Industrial Goods sector and Insurance that rose by 1.96% and 0.78% respectively. The Banking sector recorded the highest decline amongst NSE indices with the NSE Banking Index down by 3.04% WTD, owing to significant price depreciation in UBA (-4.19%) and ZENITHBNK (-3.94%).

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The market activities were characterised by bargain hunting on 2 out of 3 trading sessions last week. This is majorly driven by increased demand in a blue chip stock, DANGCEM despite sell offs in the stocks of Banking, Oil & Gas and Consumer Goods sectors.

In the global space, equities markets were bullish as US stock market reached an all-time high and the longest bull run in history. Also, the China Stock market closed in the green as US and China initiated trade talks during the week.

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Stock Watch

Over the last five trading sessions:

SEPLAT (Seplat Petroleum Dev. Company) remained unchanged to close at N650.00.
Recommendation: We place a hold rating on this stock.

FBNH (First Bank of Nigeria Holdings) fell by 1.53% to close at N9.65.
Recommendation: We place a buy rating on this stock.

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GUARANTY (Guaranty Trust Bank) fell by 1.32% to close at N37.50.
Recommendation: We maintain a buy rating on this stock.


Contact Anchoria Asset Management Limited for more information

Email: [email protected]

www.anchoriaam.com

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Patricia

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Currencies

After hitting a 3-year low during the week, Naira stabilizes as traders wonder what next

The CBN still continues to warn against currency speculators who patronize the black market.

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Naira drops again at the black market as exchange rate unification plans intensify, Naira falls against the dollar across forex markets as liquidity drops by 43% , Naira falls big at the black market as demand pressure persists

The exchange rate between the naira and dollar at the I&E remained stable on Friday, closing at N386 to a dollar. This was the same rate that was recorded on Thursday as traders mulled over reports that the CBN had adjusted the exchange rate at the SMIS window. There was also stability with the opening indicative rate as it recorded N386.86 to a dollar on Friday. This was the same rate that was achieved the previous day.    

At the black market where forex is traded unofficially, the naira also remained stable as it closed at N461 to a dollar on Friday which was the same rate that it exchanged on Thursday. The exchange rate at the beginning of the week was N460 to a dollar. By crossing N460, the exchange rate has broken a psychological ceiling going past N460 for the first time since 2017.    

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Nigeria continues to maintain multiple exchange rates comprising the CBN official rate, the BDC rates, and the NAFEX (I&E window). Nairametrics reported last week that the government has set plans in motion to unify the multiple exchange rates in line with requirements from the World Bank. Nigeria is seeking a world bank loan of up to $3 billion.  

Forex Turnover 

Forex turnover at the Investor and Exporters (I&E) window recorded a decline on Friday, July 3, 2020, as it dropped by 48.7% day on day, a reversal from the huge growth that it achieved on Thursday at the foreign exchange market. This is according to data from the FMDQOTC, an exchange where forex is traded by foreign investors and exporters.    

According to the data tracked by Nairametrics, forex turnover decreased from $204.90 million on Thursday, July 2, 2020, to $105.05 million on Friday, July 3, 2020, representing a 48.7% decline on a day-to-day basis. Despite falling short of the over $200 million trading volume that was achieved the previous day and in January, it is still a decent turnover compared to the low trading volumes recently. 

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This was still enough to provide trading boost to help reduce the pressure and stabilize the market.   

According to a July 2020 report from Moody’s, the foreign currency funding gap for Nigerian banks is expected to rise to $5 billion due to the current low oil prices, volatile forex inflows and lower diaspora remittances amid the coronavirus pandemic. These challenges are threatening to renew the foreign currency liquidity pressures that hit Nigerian banks during the previous oil crisis in 2016-2017.  

The report also indicated that dollar shortages are expected to persist over the next 12-18 months if low oil prices continue thereby renewing the forex liquidity crisis that led to severe rationing of dollar and ban on importation of some items during the last oil price crash in 2015-2017.  

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Forex Liquidity Issues 

Despite a decent turnover recorded on Friday and the stability of the naira at the I&E window and the black market, the volatility and uncertainty of the forex market still persist due to accumulated demand and liquidity shortages across markets.  The rise in demand and contrasting drop in supply has called for another round of devaluation, which the CBN has insisted it has plans to implement. 

The CBN on Friday adjusted the naira at the retail forex auction from N360 to a dollar to N380 to a dollar in a move that most analysts see as part of the plans to unify the exchange rate. A devaluation last occurred in March. The apex bank wants to unify the exchange rate to conserve the dwindling external reserves which has been hard hit by demand by ever-increasing importers and the foreign investors wishing the exit. This current move by the CBN has moved the retail auction for importers and individuals, which is the official rate closer to the over-the counter-spot for investors and exporters.Nairametrics spoke to some traders who are still reviewing what the latest move by the CBN could mean on the future price of forex. Whilst some believe this is a major step towards reunification others believe the real test of the value of the exchange rate could be when the economy finally opens. For now, projection is all speculation, one trader informs Nairametrics.    

The CBN still continues to warn against currency speculators who patronize the black market, thus widening the gap between it and the I&E window. The CBN maintains that the perceived demand cannot be substantiated following the drop in economic activities induced by the COVID-19 pandemic suggest demand should be low due to travel restrictions and drop-in economic activities.    

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The further decline in liquidity could further fuel speculations in the black market where the exchange rate has traded at a premium of N60+ over the last few weeks. The CBN claims most of the demand being cited is not represented by any official documentation and that it has informed foreign investors with genuine forex demand to be “patient” and that they will get their forex.   

 

 

Patricia
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Commodities

Cocoa prices melt lower as COVID-19 weakens demand 

The worsening wave of cases in major global economies strengthened concerns among cocoa traders. 

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Top 10 Agricultural Products Export from Nigeria, Nigeria’s cocoa exports to fall by $100m as prices rise in futures market., Africa May Lose $4.8 Billion in Crop Exports Due To Coronavirus

Cocoa futures prices are melting lower as the resurgence of COVID-19 around the world threatens global demand for chocolate (Cocoa substrate). 

At the last trading session, September Cocoa futures closed at $2,164.50.  

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As a result of weakening demand globally for cocoa and its substrates coupled with the present cocoa glut, as supplies outweigh demand, the price of September cocoa futures dropped to $2,159 per 1000kg, nearing a one-year low, before stabilizing above its support levels.  

Globally chocolate is often classified as a luxury item, meaning, in times of high economic uncertainty like this, the consumption of such products will falter, as consumers focus more on necessity goods.  

READ ALSO: Nigeria leads Africa combined in Q2 2020 on BTC P2P

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The worsening wave of cases in major global economies strengthened concerns among cocoa traders. 

However, Nigeria’s leader remains optimistic recently that efforts made by fiscal stakeholders in that sector, seems to be bearing fruit, as Nigeria recorded a surge in revenue in Cocoa, year to year.  

President Muhammadu Buhari said Nigeria’s revenue from cocoa and sesame seeds has increased by $79.4 million and $153 million respectively in the past year. 

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“Our efforts on growing non-oil exports have started to yield some results. For instance, in the past year, our revenue from cocoa and sesame seed increased by $79.4 million and $153 million,” he said. 

READ ALSO: Nigeria and US Authorities battle former Enron Nigerian Subsidiary over $80 million Yacht

Nigeria plays a leading role in the cocoa industry, covering a 6.5% share of the global production of cocoa. 

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Nigeria is also the fourth largest exporter of cocoa beans globally, behind Côte d’Ivoire, Ghana, and Indonesia, according to the National Export Promotion Council. Cocoa exports in Nigeria are projected to grow annually by 4% in the coming years. 

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These export earnings from cocoa, if invested properly, could further help Nigeria reduce its reliance on crude oil, which makes up a large chunk of its export earnings (about 90% Est), and minimize the impact of oil price swings to its economy. 

Patricia
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Cryptocurrency

Best time to make money trading BTCs

Midweek had more volatility in the BTC market than the beginning or end of the trading week.

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A Mysterious Bitcoin Whale Causes Brief Panic Sell Offs at Bitcoin’s Market, The odds against Bitcoin, Goldman Sachs says Bitcoin is not an investment asset, BTC whales control the BTC market, at the highest levels 

Most BTC investors and crypto traders are changing their methods of trading in 2020, preferring to trade around the American trading session because of the high price volatility that occurs at the start of New York stock market trading time, about 2.30 pm local time.

Data seen on Twitter feeds show that price volatility for the world’s flagship currency by market capitalization is highly correlated with the opening of American financial markets.

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In addition, other trading sessions like the London and Asian financial market openings have considerably little impact on BTC’s price volatility.

READ ALSO: How BTC Whales can push BTC market value to $1 trillion

“Can we just halt $BTC trading during Asia + Euro hours,” a crypto trader, Hsaka, said uploading evidence, which relates to the previous few days on U.S. exchange, Coinbase.

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The data may have unearthed changing tendencies among BTC traders, possibly due to the increasing prevalence of institutions within the market.

Furthermore, Skew.com, a crypto analytic firm, found out that the midweek had more volatility in the BTC market than the beginning or end of the trading week. Weekends were also observed to be quiet.

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Meanwhile, data from Glassnode, a data analytic firm, showed that about 1.8 million Bitcoins are held in miner wallets around 10% of the supply (18.5million BTC). However, around 1.73 million belong to first-time miners (7+ years) and are most likely lost. That leaves only 70k BTC in the hands of current mining pools.

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Patricia
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