Stock Recommendation: 30th October – 3rd November 2023

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Global Economy

Earlier this week, the US Federal Reserve (Fed) kept interest rates constant at 5.25%-5.50%.

The Fed has struggled to determine whether rates may be tight enough to control inflation, or whether a resilient US economy may need still more restraint.

 Current inflation remains far above the Fed target rate of 2%, and annual inflation, was higher by 3.4% YoY in September 2023 for the third month in a row.

Excluding volatile food and energy costs, it was 3.7% YoY, little changed from August. Similarly, the Bank of England’s policy makers left their key interest rate unchanged at 5.25% for the second straight meeting and stressed they do not expect to cut rates soon.

The decision to hold the benchmark rate steady was backed by six members of the Monetary Policy Committee, while three voted for a rise in the key rate to 5.5%.

Elsewhere, according to China's National Bureau of Statistics, the official manufacturing Purchasing Managers’ Index (PMI) dropped to 49.5 points in October 2023 from 50.2 points in September 2023.

The non-manufacturing PMI, which covers the services and construction industries, fell to 50.6 this month, the lowest level since China lifted its Covid-19 restrictions in December 2022.

The PMI reading above 50 indicates expansion, while anything below that level shows contraction.

 

Domestic Economy

During the week, the federal government held a meeting with domestic refinery operators to discuss crude oil availability for local refining.

They emphasized the importance of meeting domestic crude obligations, especially for the 650,000 barrel per day Dangote refinery, to avoid national embarrassment.

Gbenga Komolafe, CEO of the Nigerian Upstream Petroleum Regulatory Commission, mentioned the goal of turning the nation into a net exporter of refined products.

The NUPRC has requested crude oil producers to provide information on committed and uncommitted crude volumes in their regions, although some producers have not yet responded.

Notably, NNPCL has pledged to give six million barrels of crude oil to Dangote Refinery in December 2023.

 

Equities and stock recommendation

This week was a historic week at the Nigerian equities market, as the benchmark index crossed 70,000 points for the first time ever on Wednesday 1st November 2023, when it recorded 70,581.76 points.

This contributed significantly to the bullish end of the week, as the NGX ASI gained by 4.56% WoW to close at 70,196.77 points.

Consequently, the market’s year-to-date (YtD) returns settled at 36.97%, a surge from last week’s 31.00%. We believe that the positive sentiment this week was fueled by the release of positive Q3:2023 earnings reports by companies particularly in the Banking and Telecommunication sectors.

All the sectors under our coverage closed positive except for the Oil and Gas sector, which closed flat. Specifically, the Insurance (+7.96% WoW), Banking (+2.67% WoW), Industrial Goods (+0.73% WoW) and Consumer Goods (+0.47% WoW) sectors recorded positive returns.

The top gainers for the week were MBENEFIT (+29.3% WoW to NGN0.53), JAPAULGOLD (+28.3% WoW to NGN1.27) and AIRTELAFRI (+27.8% WoW to NGN1790.00).

On the other hand, RTBRISCOE (-14.0% WoW to NGN0.43), BETAGLAS (-10.15% WoW to NGN59.95) and MEYER (-9.9% WoW to NGN2.74) led the losers’ chart.

We expect investors to sustain their bargain-hunting activities as they look for tickers with attractive valuations following the release of Q3:2023 earnings results.

 

Fixed Income

The Treasury Bills market closed the week on a bearish note as average yield surged by 7.14% WoW to settle at 14.29%.

Similarly, the secondary bond market ended the week negative as the average yield increased by 74bps WoW to settle at 15.61%.

This is following selloffs across all ends of the curve. Overall, the Naira Fixed income market closed the week bearish as average yield jumped by 3.94% WoW to settle at 14.95%.

In the coming week, we expect the bearish sentiment to persist majorly on the back of tight liquidity in the system.

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