Market Update October 2020

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Equity: The equity market sustained its bullish momentum over the month of October with MoM and YTD return at 13.78% and 13.74% respectively. We attribute the stellar rise to the improving domestic investors’ appetite as yields in the fixed income instruments continues to depress.

On a sectorial basis, the market was driven by the following sectors including industrial (+27.88%), Telecoms (+41.02%) and Banking sector (+7.24%).

Going forward till the end of the year, we expect increased domestic investors’ participation in the Nigerian equity market due to the negative real return offered in the fixed income space.

[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ width=”1/4″][image_with_animation image_url=”8338″ alignment=”” animation=”Fade In”][/vc_column][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ width=”3/4″][vc_column_text]Fixed Income: The yields in the fixed income market continued its downward trend over the month of October. The buoyant level of system liquidity remained the major driver for the downtrend as it averaged c.N400 billion over the period. Consequently, fixed income yields declined by an average of 160bps to 3.71% across the short – mid end of the curve.

Over the rest of the year, we anticipate further reduction in yields given the lower borrowing from FG and level of system liquidity.

[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ width=”1/4″][image_with_animation image_url=”8343″ alignment=”” animation=”Fade In”][/vc_column][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ width=”3/4″][vc_column_text]Oil Prices: Crude oil prices remained volatile over the course of October, with Brent and WTI prices rising to $43.34 and $41.46 respectively on the back of optimism of stimulus package.  Also, over 92% of crude oil production shut down in the Gulf of Mexico due to Hurricane Delta supported the rally in oil prices.

However, on the flip side, concerns about weakening demand on the back of rise in Coronavirus cases in US as well as lockdowns across Europe and uncertainty about US election tapered down the gains earlier recorded in crude oil prices.
Overall, Brent crude oil prices fell by 9%, while WTI declined by 11% on a MoM basis to close at $37.46 and $35.79 as at 31st of October 2020.

Looking ahead, short term oil fundamentals look benign, however we expect gains to be capped by ongoing uncertainty fueled by rising cases of Coronavirus as well as dichotomy between crude oil demand and supply.

[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ width=”1/4″][image_with_animation image_url=”8365″ alignment=”” animation=”Fade In”][/vc_column][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ width=”3/4″][vc_column_text]Inflation: Nigeria’s headline inflation surged to its highest level since February 2018, at 13.7% YoY in September, slightly above our estimate of 13.56% YoY. Again, headline inflation was driven largely by higher food inflation, which accelerated to 16.7% YoY, from August’s 16.0% YoY. While the speed of the increase was somewhat a surprise, food inflation has been pushing higher since mid-2018, with renewed upward momentum following the land border closures in October 2019. Ongoing security, weather-related and structural challenges further added to the rising trend.

Looking forward, we expect the uptrend in year-on-year headline inflation to persist due to sustained impacts of the border closure, adverse impact of elevated transport cost, climatic factors, and FX market restrictions.

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Currency: Across the three FX window, the Naira remained relatively stable against the dollar. We link the stability to a number of factors including stable FX reserve, oil price stability and CBN policies on foreign exchange transactions. Consequently, the parallel market hovered around N460- N465/$ whilst the IEFX and official rate remained flat at N387 and N379 respectively.

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Outlook: For the coming month, we anticipate further reduction in yields given the lower borrowing from FG and level of system liquidity. For equities, we expect increased domestic investors’ participation in the Nigerian equity market due to the negative real return offered in the fixed income space.

We will continue to invest your assets in safe instruments, as we seek to preserve the value of your assets.

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