executive breakfast monthly economic review - august 2015: loot recovery???- restitution is no...

MONTHLY ECONOMIC

NEWS AND VIEWS

August 5, 2015

Market vs Control Economy

Presented at Lagos Business School

Executive Breakfast Meeting

by

B.J. Rewane

Financial Derivatives Company Limited

Nigeria goes back to the Future


2

Outline

Part A: Part B: Part C:

Part A: Current State Assessment


4

Economic Snapshot August 6, 2015

Exchange rate N223/$

IFEM N198/$

External reserves $31.52bn

Payments & import cover 5.1months

Trade balance $5.6bn


5

208

245


6

Economic Snapshot August 6, 2015

New Data

Unemployment + underemployment 26.5%

Headline inflation 9.2%

Misery index 35.7%

Interest rates (average NIBOR) 13.10%


7

Economic Snapshot August 2015

New Rules - Nigerians

40 items now ineligible for any forex payment from the

banks

Cannot deposit dollar cash into domiciliary accounts

Can only deposit by Bank transfer

Allowed to spend up to $50,000 a year on naira debit

cards


Economic Snapshot August 2015

Mandate

To reorganize the NNPC

Cut down on waste

Block leakages

Incentivize oil companies

Credentials

Private sector background

Strong academic credentials (Harvard Law)

NNPC Mandate for NCC

New Appointments

New GMD for NNPC and NCC

Mandate

Block leakages

Cut down on waste

Renew GSM licenses

Incentivize operators to invest

Credentials

Strong academic background

High integrity

8

GLOBAL IMPERATIVES


10

Global Imperatives - Stable World

H1‟15 was stable with a lower level of economic activity

Most global and regional growth estimates were missed or

trimmed

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

U.S.A E.U China Nigeria

Q1'15

Q2'15

Quarterly Growth Estimates


11

Global Imperatives - China Growth Slows

U.S, the engine of global growth, stuttered while China

shrunk marginally

The E.U grappled with Grexit or Grelout

The U.K went from a coalition government to majority

rule

The Tories exploited xenophobia, making immigration

and E.U referendum the issues

BRICS were hit by falling commodity prices, corruption

and geopolitical tension


12

Global Imperatives - Gold Loses its Shine

Financial markets rallied with a higher volatility index

The U.S dollar rose sharply above all expectations

The price of gold crashed to an 11 year low: below

$1000 per ounce

Only 4 major currencies in the world were overvalued

against the U.S dollar


13

Global Imperatives - Strong Dollar

Using the hamburger PPP analysis by the Economist

magazine

Global Banking System was stable

No notable causalities

Global inflation was muted with the U.S at 0.2%, E.U

(0.2%), U.K (0)%, Japan (0.4)% and Canada (1)%

Interest rates in most advanced markets were relatively

unchanged except in Canada

Global trade forecast slashed to 3.3% in 2015


14

Global Imperatives

Global trade forecast slashed to 3.3% in 2015

Commodity prices declined, with FFB index dropping by

-22.9%

Industrial raw materials (IRM) index, including oil, is

down 9.1%

Global stock markets were riled by the Greek scare

U.S. markets S&P 500 inched up 0.2% in H1


15

Global Imperatives

Q2‟15 is expected to be the point of inflection in

earnings

The federal reserve left rates unchanged in July

There is a 50/50 chance that rates will increase in

September


16

Notable Events in July

China‟s stock markets plunged again

The Chinese government abortively tried to bail out the

market

Citibank thinks China is already growing at 5%

Stabilisation looks fragile posing a triple risk

a) Spill-overs from increased global exposure

b) Commodity price shock

c) China‟s export/import substitution


17

SSA Imperatives- Africa Resilient

SSA economies are facing tough times with sharply

lower commodity prices

Weaker fiscal revenues and pressure to cut spending

squeezed African countries

Fears of an increase in U.S interest rates stoked anxiety

about investment flow reversals

African currencies fell across board due to negative

trade balance


18

Commodity Prices in H1’2015

The Bloomberg Commodity Index (BCOM) declined by 3.55% in

H1‟15 from H2‟14

Driven by a decline in the prices of most commodities

-35.00% -30.00% -25.00% -20.00% -15.00% -10.00% -5.00% 0.00% 5.00%

WTI ($/b)

Brent Crude Oil ($/b)

Natural Gas ($/MMBtu)

Gold ($/ounce)

Silver ($/ounce)

Cocoa ($/mt)

Sugar (US cents/pound)

Corn (US cents/bushel)

Rough rice ($/cwt)

Wheat (US cents/bushel)

% Change (H1’15 vs. H2’14)


19

Global Oil Prices at 6-Month Low

Oil price has fallen 28% since it rallied to $69pb in May

Brent dropped to a 6-month low of $49.5pb

Soft commodities average price decline: 8%

Estimated effect in 2015

Fiscal revenue: 25% decline

Trade balance: 79% decline between 2014 & 2015

Devaluation – commodity price = 3%

Inflation effect = 3% increase to approx. 12%


20

Soft Commodities - Also Falling

Average cocoa prices down slightly

with 0.73% in H1‟15

Concerns over supply shortage of

cocoa in Ivory Coast and Ghana

Large stockpiles affecting prices of

other agric. commodities

Grain prices down 7%

Sugar prices lost 15.96%

Also affected by weakening Brazilian

real


21

Nigeria – H1 Review-Economic Slowdown

Q1 EVENTS

Electricity tariff increase postponed till July

2015 budget haggling between NASS and executive

N10 cut in PMS pump price to N87 per litre

Elections pushed forward by 6 weeks to March 28

Oil price plunged below $46pb

LNG prices were down 20% to $6.8/MMBtu


22


Q1 Events

Boko Haram insurgency unabated

Naira devalued 18% and interest rates left unchanged

Power supply sharply lower at 2000MW

Impact

Q1 growth sharply down to 3.96%

Trade balance falls sharply also


23


Impact

External reserves down 13.58% to $29.79bn

Purchasing Managers Index shrank 2.1% to 55.2

Aberrational and temporary interbank spike in interest

rates to 90% p.a.

Inflation inched up to 8.5%


24

Nigeria – H1 Review- Economic Slowdown

Q2

March 28 election peaceful and conceded

Incumbent out challenger in

Historical milestone in Nigeria

Fuel shortage continues and increases

Oil prices jump 25% to $69pb

Inflation up again to 9.2%

MPC maintains status quo on interest and exchange rates


25


Q2

CRR harmonised to 31%

Salary arrears build up across most states

Transition team set up

Impact

Post election stock market and naira rally, but fizzles after

2 weeks on weak fundamentals

External reserves haemorrhage reduces


26


Impact

Import cover flat at 4.7 months

Naira under attack widening, the parallel market

premium to 20%

Naira traded at N248/$ at the BDC

PMI expands to 56

Retailers average inventory up to 5 weeks


27 Indicators

Jan’15 March’15 June’15 July’15 (Jul/Jan)% Oil Markets

Spot price (avg $’pb) 47.86 55.93 61.69 56.84 18.76

Production (mbpd) 1.96 1.87 1.90 1.90 3.06

Money Markets (End Period)

OBB (%)p.a 8.67 13.59 7.33 4.58 409bps

Overnight (%)p.a 9.25 13.84 7.75 5.25 400bps

MPR (%)p.a 13.00 13.00 13.00 13.00 -

CPI ( %) 8.20 8.50 9.20 9.30* 1.1

External Reserves ($’bn) 34.28 29.79 29.00 31.46 8.23

Exchange rate (End Period)

Inter-bank (N/$) 187.60 199.16 197.47 198.95 6.05

Parallel (N/$) 210.00 220 229.00 230.00 9.52

Market cap (N’trn) 9.85 10.72 11.42 10.34 6.19

FAAC 500.13 435 518 *520 3.97

M2 (N’trn) 16.81 19.14 18.81 *18.85 12.14

FBN PMI 56.4 55.2 56 50.6

Vacancy Factor (Residential %) 26 25 31 34 8

Vacancy Factor (Commercial %) 22 20 22 24 2

Source: EIA ,FMDQ, OPEC, CBN, FSDH, FDC Research ; (* FDC’s forecasts)

Leading Economic Indicators (LEIs)

Part B: Outlook for H2


30

Global Growth Projections

IMF projects a moderate global GDP growth of 3.3% for

2015 in its July outlook

Gradual recovery in advanced economies

U.S and U.K set to increase interest rates

Emerging and developing economies continue to slow

down

IMF projects a 6.8% GDP growth for China in 2015

4.4% for the SSA region


31

Global Interest Rates

U.S Fed leaves rates unchanged as expected

It remains on course to raising rates this year, looking

beyond:

Volatility in the Chinese financial market

Falling commodity prices

BoE unanimously held interest rate at 0.5% p.a.

Likely timing of a rate hike is towards the end of 2015-

BoE Governor


32

Global Inflation

U.S inflation was up 0.3% in June

Positive territory for the first time in 2015

U.S Fed expects inflation to rise to 2% over the medium

term

U.K inflation declined to 0% in June from 0.1% in May

Recent decline in oil price and energy could push

inflation into negative territory in the next few months

Source: IMF


34

Advanced Economies

A setback in U.S Q1‟15 output has led to a downward

revision to global growth

Underlying fundamentals remain intact

Easy financial conditions

More neutral fiscal policy in the euro area

Lower oil prices

Improving confidence and labor market conditions


35

Emerging Market Economies

The growth slowdown is expected to continue in the

second half of the 2015

This reflects several factors

Lower commodity prices

Tighter external financial conditions

Structural bottlenecks

Rebalancing in China

Economic distress related to geopolitical factors

A rebound in activity is expected to result in a pick up in

growth in 2016


36

SSA

Fed rate rise likely to exacerbate financial markets

instability & add to currency pressures in the region

Commodity prices expected to remain low in H2‟15

Will impact commodity-dependent economies

Will hamper investment

Consumption expected to remain robust

Stronger growth in the advanced economies to shore up

economic activity


37

Source: IMF

Source: IMF


39

Impact On Nigeria

An interest rate hike in developed economies will trigger

capital flow reversals from emerging economies such as

Nigeria

Heightened currency pressures

Slowdown in recent reserves accretion

China is SSA‟s largest trading partner

A slowdown in economic activities in China will impact

negatively on the external balance of economies such as

Nigeria

COMMODITIES: OUTLOOK FOR H2


41

H2’15 Outlook - Oil

The U.S dollar will play an increasing role in determining

the direction of commodity prices

A hike in U.S interest rates will boost the dollar

Outlook for oil prices remains bearish

Expected to fluctuate between $50 - $55pb

Increased supply when Iran ramps up production


42

H2’15 Outlook - Oil

The lifting of Iranian sanctions is expected to release an

additional 800,000 to 900,000 bpd of oil

Adding to the supply glut of 2.5mbpd and increasing the

selling pressure

Iran is the 3rd largest OPEC producer

EIA projects an increase in global oil demand by 1.4mbpd

in 2016

Sufficient to offset the supply glut?


43

H2’15 Outlook – Soft Commodities

Grain prices likely to decline further in H2

Based on expectations of good harvests

Rebound in prices will occur in 2016 when large stockpiles

have been worked through

El Nino concerns and possible supply shortage of cocoa in

Ivory Coast and Ghana may push prices higher

LEIs OUTLOOK FOR H2


45

Outlook - GDP

Economic activities will remain tepid until clarity on

fiscal policy direction

Reduced northern insurgency will allow for an increase

in agric output

Commencement of the harvest season will provide a

boost

Improved power supply expected with a reduction in gas

pipelines vandalism

Average grid output: 4,500-5,000MW


46

Outlook - GDP

Boosting manufacturing activities

Supplementary budget in

September

Increased but targeted spending

Paying off arrears of salaries and

contractors

5.94

3.96 3.99 4.1

5

0

1

2

3

4

5

6

7

Q4'14 Q1'15 Q2'15 * Q3'15 * Q4'15*

Quarterly GDP Growth Rate (%)

Source: NBS, *: FDC’s forecasts


47

Outlook - Money Supply Growth

Growth in M2 will be driven by

increased government spending

Passage of a supplementary

budget in Q3

Possibility of another bailout fund

Will still remain below CBN‟s

target of 15.2%

Increased spending within the

deficit of 3% of GDP -3

-2

-1

0

1

2

3

4

15

15.5

16

16.5

17

17.5

18

18.5

19

19.5

20

Dec'14 Jan'15 June'15 Dec'15

M2 (N'trn) M2 growth (%)


48


49

Inflation to Spike to 11-12% in H2’15

Inflation increase will be at a

slower pace

But could move towards 11-12%

due to:

Impact of 5-10% currency

adjustment

Likely removal of fuel subsidy with

oil price at $55pb

Money supply growth of 3%

Electricity tariff adjustment will be

accepted because of improved

supply 0

2

4

6

8

10

12

Jan'15 Dec'15

Inflation Rate (% )


50

Interest Rates

Money market rates will trend lower in H2

Driven by anticipated increase in liquidity

CBN likely to reduce interest rates by 100bps

To signal the start of an accommodative monetary policy cycle

Will encourage lending and boost spending while reinforcing

the fiscal stimulus

Borrowing costs will decline

Pressure on margins will reduce


51

Interest Rates

10

10.5

11

11.5

12

12.5

13

13.5

Jan'15 Jun'15 Dec'15

MPR(%p.a.)


52

External Reserves Depletion to Continue

Factors that could curb

reserves accretion in H2‟15

U.S Fed interest rate hike

Further decline in oil prices

Increased currency pressure

34.28

29

30.5

26

27

28

29

30

31

32

33

34

35

Jan'15 Jun'15 Dec'15

External Reserves


53

Forex Markets

The forex market is now segmented into 4 layers

The differential between the segments will widen as the

ability to move between segments becomes more difficult

and risky

The sharp drop in oil price will lead to a deterioration in

the terms of trade to 47.8 from 70.5

The desperation for electronic dollars will push that market

to N250

Cash dollars will be at N240

The magnitude of the currency value adjustment will be

dependent on when the subsidy is removed


54

Forex Markets

100

150

200

250

3000

7-Ju

l

09

-Ju

l

11

-Ju

l

13

-Ju

l

15

-Ju

l

17

-Ju

l

19

-Ju

l

21

-Ju

l

23

-Ju

l

25

-Ju

l

27

-Ju

l

29

-Ju

l

31

-Ju

l

02

-A

ug

04

-A

ug

06

-A

ug

08

-A

ug

Export Prices IFEM BDC Electronic dollars

Part C


57

Policies Implemented (H1’15)

Fiscal policy

N10 reduction in PMS price to N87

Trade policy

Common External Tariff implemented

Monetary policy

Net open position reviewed upwards to 0.5%

RDAS scrapped, IFEM adopted

CRR debits now weekly

CRR harmonized to 31%

MPR unchanged at 13% p.a.


58

CBN’s Administrative Policies (H1’15)

RDAS and interbank funds restricted to Letters of Credit

(LCs), Bills for Collection and other invisible transactions

Limit placed on naira card usage overseas to $50,000

Dollarization of the economy is illegitimized

Naira is the only currency for transactions and contracts


59

CBN’s Administrative Policies (H2’15 so far)

CBN shifts more items away from IFEM

Staples: rice, poultry and tinned fish in sauce

Financial instruments and securities

All forex demand at the CBN intervention window must

be backed by naira cover 48 hours before the request is

sent to the window

Banks are to credit CBN account with the naira

equivalent of their request


60

Illicit Financial Flows (IFF)

Nigeria ranked amongst the 10 largest sources of illicit

financial flows by the Global Financial Integrity Group

An estimated $15.7bn of illicit funds go through the

system annually

Banks now rejecting foreign currency cash deposits

Naira strengthens temporarily to N215 and slides again to

N225

Will go back to N240


61

Policies to expect in H2

Fiscal stimulus package will be embedded in supplementary

budget

Recurrent/capex ratio will be pushed to 70/30

Nigeria will engage the World Bank on Oct 6 in Peru

Subsidies will go

Refineries will be revamped


FAAC Allocation up 27% in July

FAAC allocation shared in July

was N518.5bn

26.8% higher than N409bn in June

Lagged effect of higher oil prices

in April/May

We expect H2 average to be

slightly higher at N480bn

Recovered funds will help boost

government revenues

Source: FMF, FDC Research 63

500.13

522.05

435

388 409

518.5

462 480

300

360

420

480

540

600

660

720

780

840

900

FAAC (N'bn)

63


Ships Awaiting Berth Picking Up Again

Ships awaiting berth increased

to 57 in July

From 49 in June

Reflects naira volatility

Some importers abandoning

goods at the ports

We expect a decline later in

H2 if naira stabilizes

Source: NPA, CBN, FDC Research 64


61

51 49

46 49 49

57

51 48

0

10

20

30

40

50

60

70

Jan

-1

5

Feb-1

5

Mar-

15

Ap

r-15

May-1

5

Jun

-1

5

Jul-

15

H1

'15

…

H2

'15

…

No of Ships Awaiting Berth

64


Rig Count relatively unchanged

Active rigs in Nigeria remained flat in July

Down to 10 from 19 at the beginning of the year

More rigs may be idled if oil price plunge continues

Source: Baker Hughes

874

215

19 10 0

100

200

300

400

500

0

500

1000

1500

2000

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15

US Canada Nigeria

65


Power Generation Up

Average power output from

the national grid rose to

4,300MW

Peak: 4,900MW

Attributed to reduced gas

pipeline vandalism

Expect an average of

4,000MW in H2‟15

Stable gas supply

Transmission company will

improve support to Gencos

Average Daily Power Generation (MW)

Source: Nigeria Power Reform

2000

2500

3000

3500

4000

4500

5000

16

-Ja

n

6-Feb

27

-Feb

20

-M

ar

10

-A

pr

1-M

ay

22

-M

ay

12

-Ju

n

3-Ju

l

24

-Ju

l

66


68

Sales remained resilient in South Africa despite

macroeconomic challenges

Apparel and Food/FMCG retailers saw similar total sales

growth of 9%

But food/FMCG saw stronger same store sales than

apparel

Food/FMCG: 6%

Apparel: 4%

Retail – South Africa

Source: Deutsche Bank


69

Truworths grew sales by 7%

Same store sales up 1%

Woolies apparel same store sales slowed to 4% from

8% in previous year

Pick ‘n Pay lost further market share

Sales growth of 6% compared to sector‟s growth of 9%

According to Deutsche Bank, top picks are Foschini,

Truworths, Woolies and Mr. Price

Retail – South Africa

Source: Deutsche Bank


70

Sales was sluggish in July

Garment and electronics down by 30%

FMCGs slightly up due to change in consumer buying

habits

Switching from expensive items to cheaper substitutes

Weekday and weekend traffic remained the same but

purchases declined

More window shopping

Domestic Retail – July 2015


71


Retailers gradually beginning to increase prices of goods

to reflect increased cost

Imported rice rose, affected by CBN‟s policy ban on some

imports

Also partly due to increased demand towards the end of

the Muslim fast


72


Inventory levels down and frequent stockouts

Exchange rate volatility and uncertainty is causing

confusion for retailers

Not clear when is the favorable time to import

Retailers don‟t want to order too much and end up sitting

on stocks

Cash-to-card ratio unchanged at 65:35


73

Outlook – H2’15

Expect slower domestic sales in August due to summer

travel

Sales will pick up in September due to back-to-school

shopping

Clarity in policy direction and appointment of ministers

will boost activities

New brands waiting to tap into the aspirational African

markets including Nigeria

Number of millionaires in Africa rose 145% between 2000

and 2014 (Bloomberg)


76

Name and shame by banks forced huge selling of

properties to pay down debts

War against corruption and money laundering pushing

down property values

Other investors still waiting for government policy

direction

Real Estate – July 2015

76


77

Over-supply of office space in the high end

Oil price plunge and consequent layoff of workers

affecting demand by foreign oil companies

Commercial vacancy factor in Lekki increased to 54% in

July from 48% in June


77


78

New Office Developments

Source: Northcourt


79

Demand for residential properties in high-end areas

affected by exchange rate volatility

High vacancy factor in flooded areas like Park View, Ikoyi

and Chevy view estate, Chevron, Lekki

Residential vacancy factor in Ikoyi up to 22% in July from

18% in June

Lekki: increased to 55% in July from 51% in June

Victoria Island: increased to 28% in July from 26% in June


79


80

Vacancy Factor Up set to increase in H2’15

Source: FDC Research

0%10%20%30%40%50%60%

Residential Vacancy Factor Commercial Vacancy Factor

Lekki

0%

10%

20%

30%

40%

Ikoyi

0%5%

10%15%20%25%30%35%

Victoria Island


81

Outlook – H2’15

Real estate activities will rebound in H2‟15 after

appointment of ministers

Construction will continue as government releases funds

A lot of mixed developments in the pipeline will continue

Clarity in policy direction will bring back foreign investors

Surplus might cause rental prices to fall slightly


82

New Retail Developments

Over 70,000sq. metres of retail space expected to be available in

2015

Source: Northcourt

AVIATION UPDATE


84

Aviation

Airlines continue to report higher profits especially in

the U.S and Asia

Principally due to lower aviation fuel prices

Passenger yields are down 5% year-to-year

Passenger traffic continues to grow

Growth in seats accelerated in May as more aircraft

came out of storage

U.S Airline consolidation increased and cost-cutting

intensified


85

Aviation

Growing business confidence has increased demand for passenger and freight traffic

Downward trend in global

fares in U.S dollars has

continued

Air passenger load factors

are sustaining high levels at

79% 0

10

20

30

40

50

60

70

80

90

North America European Union Sub-Saharan Africa


86

Nigerian Aviation

Naira weakness takes a toll

International passenger traffic sharply lower in July

FGN and state government travels down by over 60%

Forcing carriers to offer discount fares

Both in premium and economy classes

Increased traffic to the Middle East and South East Asia

Load factors to Europe and back are down to 65% in

economy

Club: 45%

First Class: 30%


Steals and Deals

87

PRO

MO

S

• Economy from Abuja to:

• New York – from $1304

• Boston – from $1393

• Houston - from $1482

• Washington D.C – from $1341

Lufthansa

• Fares from N241,440

• Travel Dates: Aug 2 till Nov 30,

2015

• Offer Last: Till Aug 12, 2015

South African Airways

• Buy 10 tickets and get one free Rwandair

• Buy 5 Business class tickets and

get one free Kenya Airways

Discount fares and promos are


89

Domestic Aviation

Nigeria capitalises on IOCA audit pass mark

Domestic carriers under stringent scrutiny on safety and

maintenance

Also on punctuality and on-time performance

Airlines now penalised for late departures

Carriers also being scrutinised for governance, financial

performance and payment of obligations/salaries


90

Domestic Aviation

Arik and Aero remain the dominant players

In the African markets, Ethiopian Air, Asky, Air Ivoire and

SAA are growing rapidly

Kenya airways is in need of a bailout of $500m-$600m


Global Equities Market

US stocks witnessed modest gains as firms bought back

stocks to improve valuations

The S&P 500 rose marginally by 0.37% in July

Average daily turnover decreased 12.04% to N4.07trn from

N4.62trn

Despite trading restrictions, stocks crash as Greece reopens

its stock market

Shanghai index continues to decline amidst worries of a spill

over effect

92


Global Equities Market

-10.50%

-8.50%

-6.50%

-4.50%

-2.50%

-0.50%

1.50%

3.50%

Global Indices July 2015

Source: FDC Research

93


Nigerian Stock Market Review

NSE ASI declined 8.16% in June, 12.92% YTD

Market capitalization declined 7.95% YTD, N893billion lost

Volatility reflects political cycle and uncertainties

Cappa and D‟Alberto Plc, and IHS Plc delisted on the

Nigerian Stock Exchange

Primary market activities subdued, as the market witnessed

just 2 IPOs this year.

94


Nigerian Stock Market Review

20,000.00

25,000.00

30,000.00

35,000.00

40,000.00

NSE INDEX (Jan-July) NSE INDEX (July)

Source: NSE, FDC Research

95


96

Key Results Released in July

Turnover (N'

Million) % Change

Profit After Tax

(PAT) % Change

Dangote Sugar Q2 51,120 3.06 6,311 -7.67

Nestle Q2 65,924 -1.9 8,887 -21.91

Stanbic IBTC Q2 68,295 10.66 9,695 -40.1

Unilever Nigeria Plc

Q2 28,721 -1.91 85.57 -94.16

Dangote Cement 242,215 15.94 121,808 27.63

Ecobank Transnational

Inc 273,992 21.63 48,598 52.6

Mobil Oil 31,828 -24.52 2,910 -39.58

Diamond Bank Plc 105,069 6.84 12,154 -11.83


98

Analysis of Q2 Results

Mixed results and sectorial divide as banking sector

reveals poor outing in Q2

Impairments and punitive CRR ratio continues to plague

banking sector performance

Declining oil prices affect top line of oil & gas sector

results

Results reflect a harsh business operating environment

and macro-economic headwinds


Sector Indexes

Performance was negative

across all sectors

Banking sector recorded

the worst performance

Driven by poor Q2 results

Consumer goods continue

to suffer as inflation and

rising production costs

increase beyond projections

Source: NSE, FDC Research

99


100

Stock Market Today…

The market remains bearish as poor H1 results continue

to dampen investor confidence

Heightened uncertainty as investors grope in the dark

Debtors sell off stocks and other assets to restructure and

pay-off outstanding debts before debtors lists are published

SEC suspends implementation of 1kobo bottom price as

equities continue to fall


101

Policy Choices and Implications

Soothing temporary measures vs harsh market

fundamental measures

Conflict of ideals– Pain of market reforms vs comfort of

popular choices

Devaluation and rising inflation rates

Tightened monetary policy and the effect on general

commerce


102

Q3 Stock Market Outlook

Market performance to remain subdued in the absence of

a firm policy direction

Key appointments will serve as the much desired catalyst

for a market rally

Currency devaluation will attract foreign institutional

investors and stimulate the market


103

Q3 Stock Market Outlook

Uncertainty in the Nigerian Stock Exchange to persist till

end of Q3

Price correction for poor corporate earnings results

New rules on debtor name and shame is forcing M&A activity

Forcing asset sale and pushing stock prices down

Increased scrutiny and BVN is killing identity theft and forcing

consolidation of investors


PFAs Shifting Their Portfolios

Asset Class Dec-14 May-15 % Change

Equity 603.04 653.98 8.45%

Money Markets 541.52 585.09 8.05%

FGN Bonds 2396.55 2488.03 3.82%

Treasury Bills 497.78 601.65 20.87%

Mutual Fund 21.03 22.13 5.23%

State Bond 172.40 166.23 -3.58%

Supranatinal Bond 12.36 12.69 2.67%

Corporate Bond 119.44 140.06 17.26%

Real Estate 213.25 209.12 -1.94%

Cash & Others 33.94 34.3 1.06%

4,611.31 4,913.28

Fear of default by state

governments led to a

reduction in state bond

allocation

Treasury bills continue to

attract portfolio

investments as yields rise

104


106

Political Update

Buhari separates party from

government

The party without a

government is a meaningless

association

The PDP survived as a party

because of government

patronage

“You go to war

with the army you

have – not the

army you wish to

have” - Donald

Rumsfeld


107

Political Update

The NASS crisis is a proxy war for 2019

Also positioning for the spoils of 2015

The House of Reps resolution is unlikely to be replicated

in the senate

The election tribunals will take out some key players

Changing the majority votes and making a resolution

academic


108

Political Update

Maximum pressure will be applied with the anti-

corruption instruments

The appointment of cabinet members will have 3 tracks

Influence from the retired military constituency,

establishment (traditional rulers) and international &

financial community

Criteria will be competence, pedigree and integrity


109

Political Update

Political horse trading and federal character will be the

icing on the cake

The foundation of a third party is being laid

It will consist of the APC disgruntled and PDP

mercenaries

All 3 parties are likely to have northern candidates in the

2019 run up

After power consolidation, the Buhari team will embrace

economic reform


110

Political Update

Using the savings from anti-corruption as a safety net for

the poor

Buhari will benefit from a strategic undermining of Boko

Haram capabilities

This will consolidate his mass support in the northern

states

The public arraignment of some former ministers and

leading government officers will send a strong signal to

the country


111

Political Update

Scandals and blackmailing of new ministers and

appointees will force firings and resignations

The market will be looking to see how Buhari will move

against corruption within his ranks

Outlook OUTLOOK


113

Outlook for August

More key appointments will be made in August

The scramble for office will slow after Buhari deals with

first insider culprits

The CBN will allow for dollar cash evacuation again

The naira will weaken at the parallel market to N245

The market will segment further into electronic, cash, IFEM

and export proceeds


114

Outlook for August

Stock market will retreat before picking up after a cabinet

is announced

Real estate values will continue to tank in August, with

rents sliding

Oil prices will trade between $48 - $53pb

Fiscal revenues (FAAC) for states will be above N400bn in

August

The election tribunals will swing into action with some high

profile annulments


115

Corporate Humour

115

Carolyn Kizer -

Cynics are right nine times out of ten.

- H. L Mencken

Happiness is a Chinese meal; sorrow is a

nourishment forever.


116

Corporate Humour

116

We came, we saw, we went shopping.

A woman talks to one man, looks at a

second and thinks of a third.

Life is divided into the horrible and the

miserable.

- Jan Barrett

Bhartrihari -

- Woody Allen


117

Corporate Humour

117

Murphy’s Law -

Happiness is good health and a bad

memory.

- Ingrid Bergman

It is easier to get forgiveness than

permission.


118

Corporate Humour

118

John Rostoni-

It is better to be wanted for murder

than not to be wanted at all.

- Marty Winch

Most weightlifters are biceptual.


119

Corporate Humour

119

Jean Paul Sartre

An ambassador is an honest man sent

abroad to lie for his country.

- Sir Henry Wotton

3 „o clock is always too late or too early

for anything you want to do.


120

Bismarck J. Rewane, MD/CEO

Financial Derivatives Company Ltd.

Lagos, Nigeria

01-7739889

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