Global Economy:
Although Donald Trump sees the ongoing tariffs war with China as a way of making right the ills that have bedeviled US trading position with the Chinese’s economy and help to strengthen the US balance of trade, unfortunately, economic data that have surfaced since the trade provocations began seemed not to be attuned with the White House’smid-termobjective for the corrective measures. One of such data is the Manufacturing-PMI. According to the IHS Markit, the US Manufacturing-PMI for the month of August dropped to 49.9 index point from 50.4 reported in July and also below the market’s expectation of 50.3% points. The decline in the headline PMI reflected a weak contribution of new orders amid adjustment by factories in line with weak global demand. Automotive sector seemed to receive most of the headwinds leading to a significant drop in the manufacture of goods for export. According to the IHS Markit, the latest reading is the first significant contraction in the US factory activity since September 2019.
In China, according to data from General Administration of Custom, the country’s Balance of Trade recorded a trade surplus of $45.05 billion in July 2019 compared to $27.49 billion in the same month a year ago. It was above market’s consensus of $40 billion as export rose by 3.3% y/y to $221.5 billion in July, defying market expectation of 2% drop and following 1.3% contraction in June. It was the fastest y/y growth in overseas’ sales since March despite escalating trade tensions with the US. For imports, it declined by 5.6% to $176.5 billion in July, but less than market’s projected 8.3% fall, and equally represents ease from a 7.3% drop in June. It was the third consecutive month of decrease in imports, suggesting domestic demand remained sluggish and could lead Beijing to add more stimulus to the economy. However, China’s trade surplus with the US narrowed to $27.97 billion in July from $29.92 billion reported in June. Considering the first seven months of the year, the country’s trade surplus with the US was $168.5 billion.
The financial markets across the globe continued to be trapped in the negative territory amid trade tensions and global growth concern. As such, major indices under our coverage depreciated week-on-week. The S&P 500 and NASDAQ in the US shed1.44% and 1.83% respectively. In Europe, France’s CAC, Germany’s DAX inched up 0.49% and0.42% respectively as investors reacted positively to the increasing prospect of ECB monetary and fiscal stimulus which would support the economy while UK’s FTSE shed 0.31% amid Brexit uncertainty. Hong Kong’s Hang Seng ended the week in the green, appreciating 1.73% while Japan’s Nikkei 225 tumbled by2.17%.

Markets across the globe as at Friday, 23rd August 2019

Domestic Macro-Economy:
In the period under review, Nigerian President, Muhammadu Buhari finally swore in his cabinet and assigned portfolios to the 43 appointed ministers. Unfortunately, this came six months after the presidential elections in February and nearly three months after his government was inaugurated for the second term in May. Although, one could appreciate and welcome this development when juxtaposed with the six months post-inauguration and nine months post-elections it took him to form his cabinet in 2015 during his first tenure. But when compared with some African leaders, especially, South Africa and Senegal who set-up their cabinets few days after the inauguration, it shows lapses in the Nigerian political system and necessity for a comprehensive reform of its political ideology. It is obvious that the delay just like in 2015 stymied the capital market as the foreign investors trimmed their holdings in the midst of policy inertia. It equally threatened economy momentum as growth dropped from 2.38% in Q4 ’18 to 2.01% in Q1 ’19 and the probability of a slower growth rate when Q2 ’19 data is released in days ahead looks high.

Although the president returned 14 of the ministers with same portfolios from his first term and changed some structures of the ministries, our interest here is on the critical portfolios which require bold decision making to move the economy to the Next Level. For instance, the ministries of finance, and budget & national planning were merged to a wholesome ministry of finance, which we think is a step in the right direction capable of improving coherence in policies’ making, implementations and results. One other bold decision taken by the president is the unbundling of power from works and housing ministry, which means that there should be fewer distractions in running the enormous works in the two ministries. However, the decision to select a new minister for power rather than continue with Babatunde Fashola who now leads the works and housing ministry could lead to a setback in one of Nigeria’s most troubled yet vital sector.
In the oil and gas sector where progress has been relatively low, the President retained the position of substantive minister of petroleum resources. Like events that trailed his first term, we are of the opinion that this decision is a bit of distraction and drag to major reforms in the sector. We think that the position would have been better committed to an experienced oil and gas practitioner to handle while the President concentrate on the day-to-day running of governance. As such, we think they may be little progress in the passing and implementing of reforms needed to attract investment into the industry.

Domestic Equity Market:
The performance of the Nigerian Equity Market in the out-gone week turned bullish as confidence allied to the cabinet’s announcement drove activity upward. As such, theAll-Share Index and Market Capitalization appreciated by 3.07% and 3.25% to close the week at 27,800.17 points and N13.52 trillion respectively. Safe for NSE Insurance Index which contracted by 1.38%, the other major indicators witnessed buying momentum – NSE Industrial Goods (+1.21%), NSE Banking Index (+9.19%), Oil and Gas Index (+1.64%), and NSE Consumer Goods Index (+3.97%).
Year-to-date, loss moderated to -11.6% as investor sentiment as measured by market breadth (advance/decline ratio) improved to 1.6x compared to weak 0.5x recorded in the previous week.
The +9.19% performance of the Banking Index was owing to price appreciation in ETI (+33.3), FIDELITYBK(+20.0%), ZENITHBANK (+12.0%), ACCESS (+9.9%), FBNH (+8.7%), UBA (+8.1%), GT BANK (+7.3%), and STANBIC-IBTC (+6.1%). This was amid the impressive H1-19financial results posted by GT BANK and ZENITHBANK with both companies declaring an interim dividend of 30kobo per share. In the Telecommunication space, interest in MTNN (+2.2%) amid its inclusion in the MSCI Frontier Index this week supported the sector.

Equity Market Outlook for the Week Ending 30th August 2019
Looking ahead, we expect bargain hunting on stocks that have witnessed significant price deceleration to be prominent this week, but we do not rule out the possibility of profit-taking considering current investors’ weak confidence on the market.

Stocks Recommendation
Kindly see below for stocks’ recommendation this week. Our positions on the companies are based on their recent earnings results and management’s mid to long-term outlook as revealed from their recent 6M-2019financials.