Executive Summary
“Market rode on the back of blue chips to marginal gain of 1.79%”
The NSE index which began 2010 with very promising up trend appears to be turning into a whimper as activities in February 2010 indicates unless things change fast. From an impressive and optimistic 8.5% ASI gain by January month end, the NSE finished the month of February with a 1.79% gain suggesting that the index has gone into a holding pattern by trading in a very tight range. The review conducted revealed that the market outcome achieved in the month far removed from the expectations at the beginning of the month from both ends of the investment market spectrum – investors and operators. Indeed, while most stocks have picked up or either stopped their erosion, the rate of recovery has been hampered by new volatilities; perhaps a distortion of trends owing to the re-entry of speculators in the market.

Although, the NSE ASI is not increasing by leap and bounds, it appears that some individual stocks within some sectors are being favoured by traders/investors as indicated by volume and price. February witnessed some activities which ought to have indicated a measure of improved liquidity situation and investors interest in the market, as measured by the rising profile of the volume and value of market transactions as seen in the upbeats recorded on some days in the month. The market however could not sustain the uptrend which appears to have been influenced by some investors selling into any uptrend to get out of their old losing positions. Reviewing the charts, the trading volume does not reflect convictions by traders. It seems that traders are unwilling to chase or buy stocks above certain price thresholds.

This is becoming a market of selective performance rather than a broad base rally which meant that trading in the market was motivated by a keen watch for stocks experiencing increased volume and price – with traders riding the trend. It would appear that despite the occasional positive signals seen, suggesting an imminent liquidity situation, the reality appears to be no more than an illusion at this time as the rallies could not be sustained over the month (indeed year-to-date). Investors, it would appear, are justifiably more careful with ‘trusting’ the stock market with their investible funds – which explains the downward trends in the midst of the upbeats. The unaddressed ‘loss of confidence’ in the market, accentuated by the increased political, business and investment risk profile of the country has combined to impact the market’s expected upswing.

Further, the unfulfilled promises of the regulators to improved the oversight and operating environment in the market is yet to be seen, or perhaps has faltered with aconstant shifting of the goal post. The operating environment is unsettling and provides little direction as to economic policy, regulatory framework and financing of the productive sectors of the economy to provide retail and institutional investors with the required liquidity. The NSE current bearish market trend will be two years old on March 5, 2010, and technically one would have expected that most of the aggressive sellers should have been washed out by now, but evidence abounds that some sellers are still hanging on to recoup some of their losses.

For the Nigerian capital market to get back on the road to recovery (a subject of our yet to be released NCM 2010 report); we must have a situation where the buyers overwhelm the sellers. It does not appear that a lot of investors are willing to or have been sufficiently motivated to take a brave stand at this point. Technically, certain positive indicators are beginning to emerge – the movement of the ASI is clearly indicative of a market that has bottomed out (though in danger of a major reversal if the protracted political crisis cum stagnation of the economy is left unaddressed), and the resurgence of the trading volumes.

The market in Q1 end and Q2 2010 is thus expected to move above the current levels as we ensure a sustained oil production targets, take major structural changes that encourages integrity and transparency at the NSE and SEC, reduce the country political risk considerably and devote time to set a clear cut direction for the economy; any capital market performance benchmarks. Failure to develop a roadmap for achieving a market recovery and secure a buy-in of the stakeholders, it appears that the anticipated ‘speedy’ recovery from Q3 2010 may be delayed or compromised. The long bearish trend has left most investors badly wounded and unwilling to invest in the capital markets.

The market regulators appear not to get this point.
We however remain hopeful and encourage investors to take the long view mindset in reviewing their portfolios and new engagements. This report allows you to appreciate the market in a more personal way; and empower you to engage in a much more intelligent manner. Thank you for reading and do take time to share with us your thoughts on the market, especially your personal realities as a guide in better appreciating how to relate with your professional financial advisers. E-mail our analyst at research@proshareng.com

Central Bank of Nigeria Communiqué No. 68 of the 213th Monetary Policy Committee Meeting, March 1-2, 2010
Decisions
In the light of the above, the Committee unanimously took the following decisions:
1. MPR remains unchanged at 6.0 per cent;
2. Standing Lending Facility interest rate remains unchanged at 8.00 per cent, while the Standing Deposit Facility rate is lowered from 2.0 per cent to 1.0 per cent;
3. Granted liquidity status to bonds issued by state governments, subject to their meeting the specified eligibility criteria. Detailed guidelines will be issued in due course, principally related to meeting strict standards of fiscal responsibility; and
4. To continue with the quantitative easing policy by providing N500 billion facility for investment in debentures issued by the Bank of Industry (BOI) in accordance with Section 31 of the CBN Act 2007, for investment in emergency power projects dedicated to industrial clusters. The funds are to be channeled through the Bank of Industry for on-lending to the DMBs at a maximum interest rate of 1.0 per cent for disbursement of loans with a tenor of 10 – 15 years at concessionary interest rate of not more than 7.0 per cent. The Committee also approved in principle the extension of this facility to DMBs for the purpose of refinancing/ restructuring existing portfolios to manufacturers. However, the final approval for this will come after the consideration of the report of a technical committee to be set up to work out the modalities, for implementation within one month.

Membership of the committee comprises the CBN, the Bankers’ Committee Sub-committee on Economic Development, Bank of Industry, Manufacturers Association of Nigeria (MAN), and National Association of Small and Medium Enterprises (NASME). The African Finance Corporation (AFC) will serve as technical adviser on the power project. In the case of the power projects, the following projects of the Federal Government will be covered under this facility subject to their being restructured into commercially viable projects on which banks are willing to take credit risks: Lagos (500 MW); Kano (250 MW); Onitsha/Nnewi (200 MW); Port Harcourt/Aba (200MW); Kaduna (225 MW); Funtua/Gusua/MFashi/Zaria (200 MW); Lokoja (200MW); and Maiduguri/Gombe/Bauchi (200 MW). Other power projects currently being financed by banks may also be refinanced from the fund. However, banks will be required to secure the funds drawn with eligible securities. In addition, real sector projects certified bankable that emanate from the State Governors’ engagement with the Bankers’ Committee in line with the outcome of the Enugu Retreat will be accommodated under the facility.

You can download the communique below.
Communiqué No. 68 of the 213th Monetary Policy Committee Meeting (17)

And here is the press release:
Press Release of the 213th MPC Meeting (12)

Political activity intensifies ahead of 2011 polls
• As political campaigns intensify towards the 2011 elections, the President’s ailing health condition is sparking political manoeuvres as there have been calls from the public for the President’s resignation.
• The missing link seems to be the lack of much-anticipated electoral reforms, even as Nigerians go to the polling booth for the Anambra state gubernatorial elections in February 2009 without any change to the 2007 electoral system.
• The battle for supremacy between members of the upper and lower legislative chambers delayed the presentation of the 2010 Appropriation bill, and also continues to impede the review of the country’s constitution.

Policy environment remains uncertain
• The much-anticipated passage of the Oil and Gas industry bills continued to be stifled by opposition from diverse interest groups and delays by the legislature.
• Even as the deregulation of the downstream petroleum sector portends long term benefits, we are not convinced that the deregulation policy will take a foothold before the next elections given the antagonism from the powerful labour unions.
• The Niger Delta security situation is improving following the conclusion of the 60-day amnesty programme. However, the risk lies with the absence of the President given that he has been championing the agenda and holding peace talks with the militant leaders.
• The failure to deliver on the promised 6,000MW power generation and apparent reluctance in conveying the true situation continue to place a credibility burden on the government’s policy pronouncements.

Macroeconomic conditions are improving
• The Nigerian economy witnessed another year of strong growth in 2009 (NBS preliminary estimate: 6.9%) due to the positive contribution from the oil sector, and a resilient performance in the non-oil sector.
• With the continuous rise in crude oil prices and improvement on crude oil production levels in the third quarter of 2009, the Naira enjoyed stability around the N150/$ mark, while reserves stabilised at $43 billion.
• Liquidity conditions improved in the second half of 2009, following the series of expansionary monetary policy initiatives and the N620 billion capital injection into the troubled banks.
• Even though improved liquidity has translated into lower deposit and interbank rates, lending rates (prime and maximum) appear to be downward sticky.
• Headline inflation picked up in the second half of 2009, as food supply shortage resulted in food price inflation, while imported inflation pushed non-food inflation higher.

Markets suffered another year of woeful performance
• The NSE All Share Index (ASI) declined 33.8% in 2009, while the ARM index of the 40 most capitalised stocks on the NSE lost 27.4%.
• The banking sector, which represents about half of the market capitalisation, declined 38.7%, counteracting gains recorded by some non-financial sectors (building materials, conglomerates and brewery sectors).
• The decline was triggered by the CBN Governor’s pronouncement that the Nigerian banking sector suffered a huge crisis of credibility from bad debt overhang particularly from margin loan and oil sector loan losses.
• Equity market losses were subsequently magnified by the release of the outcome of the CBN/NDIC joint audit on the 24 banks in August and October, where 9 out of the 21 quoted banks were found wanting. This, coupled with the release of debtors list of the rescued banks in the newspapers, sparked an equity sell-off by debtors in a rush to repay margin loans.
• Activity remained vibrant in the bond market with a tilt towards the longer tenors in line with the country’s debt management strategy. State governments have also made forays into the bond market.

Fiscal policy inconsistent with economic priorities
• The proposed government spending for 2010, tagged ‘fiscal stimulus budget’, is focused on stimulating consumption and not particularly focused on spending on productive sectors to boost economic recovery.
• The government also lamented about the poor implementation of 2009 capital votes, but we have not seen any tangible plans to address the situation in the coming fiscal year.
• Government intends to fund the huge budget deficit (N1.6 trillion) mainly with the issuance of external and domestic debt, with serious implication for crowding out the private sector borrowing. We also expect a complete drawdown of excess crude savings in 2010.

Economic outlook for 2010 looks promising
• Improvements in the oil sector following the relative calm in the oil-rich Niger Delta region should drive strong economic performance in 2010.
• The non-oil sector’s performance will continue to play an important role in the economy, as agricultural production continues to be boosted by increased investment in the sector and better weather prospects.
• Manufacturing output, on the other hand, is expected to remain in decline throughout the rest of the year as infrastructural bottlenecks, especially power supply and transportation systems, remain unresolved.
• We expect the CBN’s N500 billion quantitative easing plan, which includes investment in bonds to be issued by the Asset Management Company (AMC), to continue boosting liquidity in the system and expand money supply. However, we do not foresee any significant drop in lending rates in the short term given the high inflationary outlook and significant credit risk arising from high economic and industry risks in Nigeria.
• We expect inflation to remain high in 2010 with pressures mounting from both food and non-food components of the CPI basket. However, if the petroleum price deregulation occurs in 2010, the upward adjustment of petroleum prices will likely drive inflation far beyond our 13% target.
• While prevailing fundamentals point to the appreciation of the Naira in 2010 even as foreign reserves remain resilient at $US43 billion, the CBN’s deliberate effort to counter any significant appreciation, leads us to forecast a N/$US exchange rate around current levels of N150/$US.

Equity market shows signs of recovery
• We expect investor sentiment to switch gradually towards the supportive macroeconomic and liquidity outlook for 2010.
• Notwithstanding, we expect investor sentiment to remain fragile through much of the first half, given difficult economic and operating conditions as businesses struggle to access finance, unemployment increases, uncertainty deepens over the deregulation of the downstream oil sector, and the stalemate over the leadership of the country remains unresolved.
• We think support for market recovery will come partly from current deeply discounted valuations, especially in the context of a global market that has recovered to near precrisis levels with risk aversion thinning out significantly.
• Developments in the Niger Delta will also remain critical to market sentiment, directly impacting the nation’s medium to long term macro-economic prospects and the policy responses of the government to the myriad of issues facing the economy will set the backdrop for local and international re-pricing of Nigeria risk.

Bond market set for a surge in activity
• We expect the Federal Government to take the lead especially as its 2010 expansionary budget includes a deficit of over N1.5 trillion; at least N700 billion of which is intended to be funded through local bond issues.
• Given the cap (10% of loans) placed on bank lending to the public sector, we expect more states, in 2010, to follow the lead of the 4 states that issued bonds in 2009.
• We also anticipate an increase in corporate bond issues especially from banks as they try to increase the tenor of their liabilities to better fund longer term assets.
• Investors with long term investment horizons are advised to overweight state bonds (especially short tenors) given the significant yield pick-up (as much as 700bps) they offer over FGN bonds.

Meristem - NSE Report - Feb 25th 2010 (17).

IBTC - NSE Report - Feb 25th 2010 (10) ]]> http://www.naijalowa.com/stockbrokers-weekly-nse-reports-2/feed/ 0 http://www.naijalowa.com/nse-stats-for-the-week-ended-feb-25th-2010/ http://www.naijalowa.com/nse-stats-for-the-week-ended-feb-25th-2010/#comments Tue, 02 Mar 2010 22:22:32 +0000 donne4real http://www.naijalowa.com/nse-stats-for-the-week-ended-feb-25th-2010/ Here are the NSE stats for the week ended Feb 25th 2010:

Vanguard Newspapers has a brief account of the speech:

The Governor, Central Bank of Nigeria, Mallam Sanusi Lamido Sanusi has revealed the details of the four pillars of banking reforms at the pre-convocation lecture of the Bayero University, Kano, weekend.

In a paper titled, “The Nigerian Banking Industry: What went wrong and way forward”, Sanusi challenged the academics for their absence in the discourse on the banking crisis which he considered tragic because it “has been left to journalists of varying degrees of sophistication, and to faceless agents and charlatans”.

He therefore challenged the intellectuals to take advantage of the opening salvo fired by the CBN to lead what he said “could potentially be a revolutionary battle against the nexus of money and influence that has held the country at ransom for decades”.

Discussing what went wrong, Mallam Sanusi said “eight main interdependent factors led to the creation of an extremely fragile financial system that was tipped into crisis by the global financial crisis and recession”.

He gave the factors to include: macro economic instability caused by large and sudden capital inflows; major failures in corporate governance at banks; lack of investor and consumer protection; inadequate disclosure and transparency about the financial position of banks; critical gaps in regulatory framework and regulations; uneven supervision and enforcement; unstructured governance and management process at the CBN and weaknesses in the business environment in the country.

Turning to the reform programme of the CBN, and in obvious reference to opponents who claimed that the CBN has no strategy or there is no roadmap to the reforms; the Governor said, while the U.S had just set up a committee to undertake a study of what went wrong over there, after achieving some stability; in our own case, “we commissioned a detailed study with the involvement of the CBN and external resources to diagnose the problems and come out with solutions” which he said culminated into the formulation of the blue print or roadmap for the reforms.

Mallam Sanusi reiterated that the blue print for reforming the Nigerian financial system in the next 10 years is built around four pillars of enhancing the quality of banks, establishing financial stability, enabling healthy financial sector evolution and ensuring that financial sector contributes to the real economy.

Meristem Weekly Report - Feb 19th 2010 (35).

IBTC Weekly Report - Feb 19th 2010 (45) ]]> http://www.naijalowa.com/stockbrokers-nse-report/feed/ 0 http://www.naijalowa.com/nse-performance-for-week-ended-feb-19th/ http://www.naijalowa.com/nse-performance-for-week-ended-feb-19th/#comments Wed, 24 Feb 2010 16:25:34 +0000 donne4real http://www.naijalowa.com/?p=1399