Global economy
In line with market expectations, the People’s Bank of China (PBoC) voted to keep key interest rates
unchanged for the eighth consecutive month. Specifically, the one-year Loan Prime Rate (LPR) was kept
steady at 3.85% while the five-year LPR was also retained at 4.65%. The decision is in line with the
forward guidance from the Bank on the need to maintain accommodative policy as the economy
continues to recover from the impact of the COVID-19 pandemic. So far in 2020, we highlight that the
one-year LPR and five-year LPR have been cut by 30bps and 15bps, respectively. With key
macroeconomic indicators gravitating towards pre-COVID levels, we envisage the possibility of
a rate hike in 2021. However, we think this would be done gradually to avoid a sudden halt in
recovery process and transmitting waves of shock to the financial markets.
In the U.S, orders for durable goods rose in November on the back of a surge in the demand for transport
equipment and electrical appliances, indicating factories could support economic output in Q4-20. Data
from the U.S Census Bureau showed that new orders for long-lasting manufactured goods, including
transportation items grew by 0.9% m/m, after a 1.8% m/m jump in October. This was driven by demand
for transportation equipment (+1.9% m/m) which has increased in six of the last seven months, and
defence aircraft (+15.7% m/m). We highlight that orders for non-defence capital goods excluding aircraft
rose modestly by 0.4% m/m. Despite weak consumer spending amid a renewed surge in COVID-19
infections, we believe the low-interest environment has continued to support investment in
business equipment. Accordingly, we think business investment would provide some catalyst for
growth in Q4-20 albeit the momentum will be capped by the rising spate of COVID infections.
Global markets
Global stocks were broadly bearish as optimism over vaccines and Trump’s demand for an increment in
the virus relief bill was outweighed by the emergence of a new variant of the COVID virus amid
reinstatement of travel bans and lockdown measures. Consequently, US (DJIA: -0.2%; S&P: -0.5%)
stocks were set to close the week in the red. Likewise, in Europe, the STOXX Europe (-0.1%) and FTSE
100 (-0.5%) on track for a weekly loss, as investors sentiment was dampened by news of a new strain of
virus which offset optimism surrounding the impending Brexit deal before the yuletide celebrations. Asian
(Nikkei 225: -0.4%; SSE: -0.9%) markets ended the week lower, as investors sentiment mirrored the
trend on Wall Street. Emerging markets stocks (MSCI EM: +0.2%) recorded marginal gains driven largely
by gains in South Korea (+1.3%) while Frontier (MSCI FM: +0.9%) market stocks were on track to close
lower following losses in Kuwait (-1.5%) which outweighed the robust gain in Nigeria (+5.4%)
Nigeria
Economy
The fiscal operations of the Federal Government of Nigeria (FGN) continue to be marred by the lingering
impact of COVID-19 on oil prices amid subdued economic activities. According to the Q3-20 economic
report of the CBN, the retained revenue of the FGN declined by 35.7% y/y to NGN842.09 billion. On a
q/q basis however, it grew marginally 4.7% q/q- we believe this was due to the relaxation of the COVID19 lockdown measures which translated to improvement in economic activities during the review period.
Juxtaposing the provisional expenditure of NGN2.13 trillion with the retained revenue in the quarter, the
fiscal operations of the FGN resulted in an estimated deficit of N1.29 trillion. With economic activities
and oil prices still below pre-pandemic levels amid compliance with OPEC production cuts, we
expect revenue from both non-oil and oil sources to remain challenged. At a time, the government
is spending its way out of the economic recession, the resulting effect would be widening in fiscal
deficits which will require increased level of borrowings over 2021.
The National Assembly (NASS) during an emergency session, passed the National budget while raising
the total estimates by c. NGN505.00 billion to NGN13.59 trillion. According to the NASS, the increase
was necessitated by the need to upscale the National Social Investment Programme (NSIP) with
NGN365.00 billion and a discovered under-projection of revenue by c. NGN100.00 billion. We highlight
that this new estimate comprises (1) NGN5.64 trillion for recurrent (non-debt) expenditure, (2) NGN4.13
trillion for capital expenditure, (3) NGN3.32 trillion for debt service, and (4) NGN496.53 billion as statutory
transfers. If assented to by the President, this would put the total estimated budget deficit
(including GOEs and project-tied loans) at NGN5.60 trillion based on projected revenue of
NGN7.99 trillion (inclusive of the NGN100.00 billion under-projection). Based on the revised
budget, our base case scenario shows that the budget deficit will now print NGN6.78 trillion
(Previously: NGN6.37 trillion) which is 21.1% ahead of the revised budget.
Capital markets
Equities
Investors flocked into the shares of Dangote Cement following the announcement of its much-awaited
share buyback programme. Based on the preceding, the local bourse received a boost as the ASI rose
by 5.4% w/w, the second consecutive weekly gains and closed at 38,800.01 points, the highest level
since 28 May 2018. Activity level was strong, as volume grew significantly by 45.6% w/w while value
spiked by 128.4% w/w. Although, foreign investor interest in AIRTELAFRI (+10.0%) dissipated compared
to the prior week (+21.0%), bargain hunting in DANGCEM (+17.0%), BUACEMENT (+9.1%), and
FLOURMILLS (+7.5%) buoyed market performance. Accordingly, MTD return rose to 10.7% while the
YTD return for index improved to 44.5%, which in now ahead of the 42.3% gain recorded in 2017.
Performance across sectors was broadly positive. Save for the Banking (-1.0%) index that closed in the
red, the Industrial (+12.1%), Insurance (+6.0%), Oil and Gas (+1.4%), and Consumer Goods (+0.3%)
indices closed in the green.
As the year draws to a close, we expect yield-seeking investors to take positions in stocks with
attractive dividend yields, in the face of increasingly negative real returns in the fixed income
market. However, we advise investors to take positions in only fundamentally justified stocks as
the weak macro environment remains a significant headwind for corporate earnings.
Source: CORDROS SECURITIES
