By CardinalStone Research,
Capital importation shrinks in Q3’18
The value of capital imported into Nigeria declined by 31.1% YoY and 48.2% QoQ in Q3’18 to US$2.9 billion, to record at its lowest level since Q2’2017. Correspondingly, the value of foreign portfolio investments (FPIs) recorded at US$1.7 billion, which represents a decrease of 58.2% compared to Q2’18 and a 37.7% decrease compared to the third quarter of 2017. Notwithstanding, FPIs accounted for the bulk of capital imported into the country (60.3%), while foreign direct investments (FDIs) and other investments made up 18.6% and 21.1% respectively.
Figure 1: Total capital importation US$ ‘billions (Q1’14 – Q3’18)
Foreign Investments settle in money market; FDI records growth
So far this year, foreign investments have been concentrated in the money markets (US$7.5 billion), with the equity space playing second fiddle at US$2.1 billion while the bond market has recorded relatively muted interest with inflows of US$773 million. In Q3’18 alone, capital inflows into the money market amounted to US$1.3 billion, while equity and bonds inflows amounted to, US$394.5 million and US$37.5 million respectively. This pattern is in line with the foreign investor preference for money market instruments in the last two quarters, contrasting with a 5-year (2013-2017) lasting preference for the equity market. Relatively higher inflows into money market follows several increases in money market rates in the third quarter. OMO yields in the quarter rose by c. 2.5% to 15.6% in the third quarter. Foreign investor preference for money market instruments over equity and bond investments signals investor skepticism over long term prospects for the country, as election uncertainty continues to loom over investment decisions. Surprisingly, however, FDIs rose to its highest level in three years since Q3’15 to record at US$530.6 million.
Shares (58.4%), which comprise both FDI and Portfolio Investment in equity, represented the bulk of capital importation by sector, banking (10.1%), financing (13.0%), production (8.1%) and servicing (7.21%) were other popular destinations.
US ousts UK to become the biggest source of capital imports
The US overtook the UK as the main source of capital imports in Q3’18 to record at US$911.3 million and US$871.1 million apiece, although both countries recorded significant declines in capital imports by 25.6% and 50.9% respectively. The decline was largely expected as investors reallocate their portfolios to adjust for political risk, as the general elections in February 2019 draws closer.
However, the case for investments in Nigeria has become slightly more balanced in recent times. On the one hand, lower oil prices and political risk, gives reason to hold off on investments in the nation in the near term. But on the other hand, a more dovish stance by the US FED, concerns over an overvalued US stock market, uncertainties over Brexit and Italy’s proposed budget make a case for prospecting on emerging and frontier nations. Moreover, consecutive rate hike on domestic money market instruments and a relatively stable exchange rate in Q4’18, may appeal to some FPIs chasing ‘hot’ money.
Market Update for December 12 2018
Volatility on the Nigerian Stock Exchange (NSE) continued at the midweek, with the benchmark All-Share index closing lower on a high volume traded driven by huge losses suffered by the insurance sector and high cap stocks like Nigerian Breweries, 11 plc and Zenith Bank, despite the positive breadth.
The oscillating trend ahead of the year-end rally on improved volume and mixed technicals are signals of bargain hunters and other market players repositioning for the expected Santa Claus rally as economic indices remain positive in the last quarter which is likely to boost earnings performance of many listed companies at the end of 2018 financial year end.
The composite NSEASI opened trading on slight upside in the morning but pulled back in the mid-morning to early afternoon before retracing up few minutes to the session’s close, reducing the magnitude of lose. This was however after the index had touched intraday lows of 30,611.08 basis points, from highs of 30,771.47bps before finally finishing the day at 30,642.35bps.
Market technicals were weak and mixed as volume traded was higher than previous day’s in the midst of strong selling pressure as revealed by Investdata’s Daily Sentiment Report, showing a sell position of 81% and 19% buy volume. Volume index for the day’s total transactions was 1.00.
Energy behind the day’s market performance was stronger, as reflected in the money flow index at 20.48bps, up from previous day’s 17.92points, indicating that funds entered some stocks in the midst of the prevailing low market liquidity.
Index and Market Cap
At the end trading, the NSEASI shed 76.37bps, closing at 30,642.35bps from the 30,718.70bps, representing 0.25% decline, just as market capitalization fell by N27.90 billion, closing at N11.19tr from an opening value of N11.22tr, representing a 0.25% value loss.
Attention: Join Investdata buy and sell signal setup to get all our in-depths analysis on the picture and to get access to our carefully created watch list. To become a member, send ‘YES’ or ‘STOCKS’ to the phone numbers below. The number of stocks on our watchlist has increased due to the prolonged market correction. Take advantage of this service to buy right and sell right.
Wednesday’s downturn followed losses suffered by Nigerian Breweries, 11 plc, Zenith Bank, FBNH, UBA, Access Bank, Diamond Bank, Dangote Sugar and Honeywell among others. This impacted negatively on Year-to-Date loss position, raising it to 19.88%, while market capitalization decline YTD came to N2.42tr from its opening level in January, representing 17.76% decline during the period.
Bearish Sectors Indices
The sectoral indices were largely bearish except for the NSE Industrial that closed in the green, just as market breadth remained positive with advancers outnumbering decliners in the ratio of 24:20.
Market activities were up in volume and value by14.28% and 8.53% respectively to 246.13m shares worth N3.69bn, compared to previous day’s 215.38m units valued at N3.40bn, Transactions volume were driven by financial services stocks like: Zenith Bank, FBNH, Access Bank, Diamond Bank and Guaranty Trust Bank.
The best performing stocks for the session were CAP and Forte Oil that topped the advancers table, after gaining 10% and 9.75% respectively, closing at N34.63 and N21.95 each on market forces and low prices. The decliners’ side was led by Conoil and AXA Mansard, following their 10% loss apiece, closing at N20.25 and N1.80 each, on market forces and profit taking.
We expect this volatilityto be sustained as bargain hunting and portfolio repositioning for year-end to shape performance of the market ahead of Santa Claus rally, as number of companies hitting new 52-week low are on the increased to reflect undervalue state of the market.
The ongoing volatility will persist as Q3 numbers assist investors and fund managers rebalance their portfolios, while watching the political space and ahead of full year company earnings position and post-election market dynamics. These are likely to drive prices north, or south, while determining market direction before or after the Presidential Election.
Investors should review their positions in line with their investment goals, strength of the company numbers and act as events unfold in the global and domestic environment.
However, we would like to reiterate our advice that investors should go for equities with intrinsic value,
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain low in the midst of weak company, economic and market fundamentals.
The Central Bank of Nigeria on the authority of The Debt Management Office on behalf of the Federal Government Of Nigeria Offers for Subscription by Auction and is authorized to receive applications for
N35,000,000,000 – 12.75% FGN APR 2023 (5-Year Re-opening)*
N35,000,000,000 – 13.53% FGN MAR 2025 (7-Year Re-opening)*
N45,000,000,000 – 13.98% FGN FEB 2028 (10-Year Re-opening)*
Auction Date: December 19, 2018
Settlement Date: December 21, 2018
SUMMARY OF THE OFFER
Federal Government of Nigeria (“FGN”)
UNITS OF SALE:
N1,000 per unit subject to a minimum subscription of N1MLN and in multiples of N1,000 thereafter
For Re-openings of previously issued bonds, (where the coupon is already set), successful bidders will pay a price corresponding to the yield-to-maturity bid that clears the volume being auctioned, plus accrued interest from the original issue date.
Bullet repayment on the maturity date
1. Qualifies as securities in which trustees can invest under the Trustee Investment Act
2. Qualifies as Government securities within the meaning of Company Income Tax Act (“CITA”) and Personal Income Tax Act (“PITA”) for Tax Exemption for Pension Funds amongst other investors
3. Listed on the Nigerian Stock Exchange
4. All FGN Bonds qualify as liquid assets for liquidity ratio calculation for banks
FGN Bonds are backed by the full faith and credit of the Federal Government of Nigeria and are charged upon the general assets of Nigeria
* (1) The DMO reserves the right to alter the amount allotted in response to market conditions.
* (2) Retail & Institutional Investors are encouraged to participate.
Should you require further information on how to get the best (and higher) coupon for Your FGN bonds purchase, please contact directly Ekwueme Mike Anyadibe – Head Fixed Income Sales (080 6656 4748 and/or e-mail: firstname.lastname@example.org and/or live during trading hours via skype #ID: respartner).
N.B: Invest in FGN S-bonds only for savings purposes, please do not speculate with them!
TRW BOND TEAM – TRW Stockbrokers Limited,
Corporate Office: 62/64 Campbell Street (Kajola House)
4th Floor Lagos Island Lagos .
Email: email@example.com; firstname.lastname@example.org
- The trader’s navigator indicator (a trend forecaster) had a firm buy signal dd. 27/9/2018. At the moment, the indicator may be forming a double top. Let’s see how that develops in the coming trading days;
- Fidelitybnk @ N2.09 is well extended but our max. target resistance level is @ N2.20
- If Fidelitybnk enters a short-term correction then our target support range is btw N1.77 – N1.79;
- RRR (risk reward ratio) is 33k/11k => 3:1 thus it is not in the buyer’s favour.
- Fidelitybnk is well positioned to be a suitable ‘relatively weak’ stock which will rise fastest at the beginning of a new bull rally.
- The trader’s navigator indicator (a trend forecaster) remains with a ”firm” buy signal since 27/9/2018;
- Today, Fidelitybnk’s price broke out of a short-term bearish trend channel and needs to break subsequent resistance levels @ N1.97 & N2.10 for the new bull trend to be firm;
- Our max. target resistance range is btw N2.15 – N2.18;
- RRR (risk reward ratio) is 8k/31k => 1:4 thus it is in the buyer’s favour at the moment;
- Fidelitybnk is well positioned as a ‘relatively weak’ stock thus may rise fastest at the beginning of a santa rally.