By Imperial Asset Management
Global Economy
In the out-gone week, theUS – China trade confrontations took a hostile turn after the US government labeled China a currency manipulator amid the Peoples’ Bank of China devaluation of Yuan by 7bps against the US Dollar – its lowest level since the financial crisis of 2007 – 2010. It would be recalled that the US has threatened to apply 10% tariffs on $300billion of Chinese imports (goods and products from China to the US) starting from 1st of September 2019. This led the Chinese People’s Bank to take a drastic measure to prevent further negative pressure on its macro-economic indicators. It created a ripple effect on the crude oil and capital markets across the globe. In the oil market, for instance, the Brent benchmark and OPEC reference basket crude oil prices slide to a six-month low of $58.59/bl and $57.82/bl respectively. Similarly, the major equity markets across the globe suffered significant sell pressure to close negative last week. In the US, the DJIA, Nasdaq, and S&P 500 indexes shed 1.29%, 1.00%, and 0.90% respectively. Japanese Nikkei 225, Germany DAX and Chinese Shangai Composite Indexes shed 1.91%, 1.50%, and 3.25% respectively.
The UK economy shrank by 0.2% in Q2 ’19 according to data released by Office of National Statistics on Friday, 9th of August amid pressure on the industrial output which slides by 1.4%, the most since the Q1 ’12. The fall in manufacturing output was driven by a 5.2% contraction in transport equipment output, which largely reflected the partial closures of various car manufacturing plants amidst Brexit uncertainty. There were also declines in the manufacturing output of pharmaceutical, chemical and metal products. Mining and quarrying output fell 0.4%, driven by scheduled maintenance in several oil and gas fields. There is now a growing fear that the UK economy may fall into a recession if its growth contract again in Q3 ’19. Meanwhile, in another development, the Statistical office reported that the economy posted a trade surplus of £1.79billion in June compared to a deficit of £2.0billion reported in the prior month. Fortunately, this was the first trade surplus since February 2011. Notably, exports of goods and services rose 4.5% (vs 1.5% in Q1 ‘19) to £55.41billion while imports plunged 2.6% (vs 10.8% in Q1 ‘19) to £53.63billion.

More Central Banks across the globe joined the apprehension on global fragility by cutting policy rates to provide support to their economies. TheCentralBanks in India, NewZealand and Thailand delivered a 35bps, 50bps and25bps rate cuts respectively.

Markets across the globe as at Friday, 9th August 2019
Bourse Closed (09-8-2019) 1-Week % Change 1 Month Return (%) YTD % Change 1-Year Return (%)
Dow Jones 26,279.01 -1.29 -3.85 12.66 4.34
S&P 500 2,926.05 -0.90 -2.90 16.73 3.70
NASDAQ 8,016.37 -1.00 -2.76 20.81 2.51
FTSE 100 7,207.06 -2.07 -3.40 7.77 -5.12
DAX 11,500.44 -3.25 -4.65 11.28 -4.92
CAC 40 5,353.07 -0.64 -3.76 13.37 -0.91
Nikkei 225 20,655.13 -1.91 -4.75 3.20 -7.61
Hang Seng 25,281.30 -1.50 -11.21 -2.18 -9.50

Domestic Macro-Economy:
In the period under review, the Nigerian Central Bank (CBN) released two related data on policy frameworks designed to shape the activities of operators in the financial services as part of its effort to strengthen consumer protection initiative. The first data – Consumer Protection Guidelines on Responsible Business Conduct seeks to provide protection to consumers against the unethical and predatory practices that undermine consumer confidence in the use of financial services. Therefore, it provides minimum standards expected from Financial Institutions on responsible business conduct. It strongly made provision in the following areas; financial advice, responsible lending, debt collection, sales promotion, compliance, and sanctions.

The second guidelines were consumer Protection Guidelines on Disclosure and transparency aimed at providing consumers with all material and relevant information regarding their business relationship in a clear and transparent manner. The CBN also indicated that the Financial Institutions shall ensure that the provisions of the Guidelines form part of any consumer-related transaction, product or service agreement they may enter with any other institutions which are otherwise not regulated by the CBN.
Our take:
Drawing from the above highlights, we see the CBN push towards improving consumers’ protection in the financial market impacting positively on the sentiment in business space and ultimately the capital market. We equally think this is capable of instilling confidence foreign investors have in the domestic market.

What is the way forward for the Nigerian Capital Market?
With the global growth fragility and the trade war developments, both foreign and domestic investors have become jittery and the unavoidable question of what the Nigerian economy fundamental is has become central to business owners and prospective investors. The Nigerian economy as it stands today is currently driven by a GDP growth of 2.01%, a Manufacturing-PMI of 57.3%, an inflation rate of 11.22%, foreign reserves of $44.66billion and interest rate of 13.50%. When the above figures are compared to the rates reported in subsequent quarters post 2016-2017 recession, one can vividly deduce that the economy’s fundamental holds firmer currently.
Then arise the second question – if the economy holds good fundamental, why is the capital market in a downward spiral since the market mirrors the larger economy? Of course, the above holds true but you must understand that we operate today in a global village where countries are bonded by information and trades. Major economic events in an economy (developed and developing) elsewhere has a greater propensity of catching up with another economy. This is where the Nigerian economy found itself today. Kindly note that domestic challenges (which we have often emphasized in several economic reports) were equally factored in our assumption here.

With the above understanding, the impact of external events cannot be isolated from the challenges in the local market. The consistent selloffs of equities are evidence of weak confidence investors have on the local and global markets due to trade war concerns and global growth fragility.

Way forward for the Equity Market:
Although year-to-date, the equities market has lost 13.12% and the fixed income space has traded predominantly on sideways which led 10-year FGN-Bond’s yield to drop from 15.70% high in January to current 14.00%. With the economic fundamentals staying firmer compared to recent slacks in developed markets (where monetary authorities have become more dovish), chances that investment interest could flow to Nigeria market is gaining ground. But the government must make and implement the right policies to expedite the Ease of Doing Business.
In the meantime, the performance of the Nigerian Equity Market in the out-gone week remained tepid as weak investors’ confidence dominated activity log. As such, the All-Share Index and Market Capitalization fell by 1.17% to close at 27,360.81 points and ₦13.31 trillion respectively. Safe for NSE Industrial Goods Index with a growth of +1.26%, selloffs were recorded in all other major sub-indicators – NSE Banking Index (-6.06%), Oil and Gas Index (-1.62%), NSE Insurance Index (-3.88%), and NSE Consumer Goods Index (-0.65%).

Equity Market Outlook for the Week Ending 16th August 2019
Looking ahead, we expect we expect investors to maintain current speculative approach in the market owing to escalating global tension and weak confidence while awaiting the release of major Tier-1 DMBs earnings who are set to announce an interim dividend.

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.

Stock C-Price (₦) Wtd-Return % Ytd-Return (%) L-EPS (₦) F-EPS (₦) Trailing-PE Entry Price (₦) Div. Yield (%) P/BV (x) 9M-TP (₦) Target Return (%) Rating
ZENITH 16.35 -10.66 -29.07 1.60 6.40 10.22x 16.00 13.51 0.66x 25.00 52.91 Buy
DANGCEM 165.00 -2.94 -13.02 7.01 18.65 23.54x 160.00 9.42 2.77x 215.00 30.30 Buy
UBA 5.55 -5.93 -27.92 0.84 3.20 6.61x 5.50 11.82 0.35x 8.00 44.14 Buy
MTNN 131.00 +3.15 +45.55 4.86 16.50 26.95x 130.00 1.09 0.75x 160.00 22.13 Buy
GUARANTY 26.50 -5.36 -23.07 1.68 6.80 15.77x 26.32 8.39 1.24x 35.50 33.96 Buy
FIDSON 4.50 0.00 -17.17 0.13 0.26 34.02x 4.00 3.41 0.97x 5.00 11.11 Hold