Monthly Economic News and Views1 at Lagos Business School Executive Breakfast Meeting
July 4, 2012
Presented by B.J. Rewane Financial Derivatives Company Limited It’s the Economy, stupid
- James Carville
Declining Oil Prices – A threat to macroeconomic stability
Financial Derivatives Company Limited Outline
Burning Issues in June
Global Update and Implications
Leading Economic Indicators
Policy Update
Markets and Business Proxies
Political Review
Outlook 3
Financial Derivatives Company Limited Burning Issues in June
4
Oil price decline continues dipping by 5% in June
Year to date Bonny Light has shed 29% or $35 from its peak of $130pb
The impact on revenue for Nigeria is magnified
In April oil revenue declined 7.1% to $4.72bn
Net inflow of forex also dropped sharply to $1.49bn
Financial Derivatives Company Limited Burning Issues in June
5
Naira under speculative attack, forex sales for June up to $2.75bn
Forex revenue decline partially offset by U.S. dollar appreciation
The U.S. dollar has gained over 5.97% against the basket of world currencies in the last quarter
External reserves down marginally to $36.6bn
Financial Derivatives Company Limited Burning Issues in June
6
Marginal increase in money supply (M2) growth of 2.24% month-on-month
When annualized, there has been a decline in M2 growth of 0.74%
CBN mopping up and forex sales is keeping a lid on M2
Cashless Lagos- mild impact on consumption patterns and behaviour
Financial Derivatives Company Limited Burning Issues in June
7
New Visa-at-Destination rules for international investors to Nigeria announced
Fiscal balance threatened by potential decline in revenue and an inelastic expenditure profile
N2.1trn spent so far on fuel subsidy representing 47% of 2012 budget
Clearly an unsustainable item of expenditure
Financial Derivatives Company Limited 8 Global Update
World economy still on the ropes
Financial Derivatives Company Limited Global Update - World Economy Still on the Ropes
9 According to Bank of America
Emerging markets that initially appeared relatively unscathed by the E.U. crisis are now catching the cold
Plunging oil prices and downward revisions to growth projections are generating a negative market sentiment
OPEC cartel is trying hard to hold the line, especially with Saudi as a swing producer
The IMF reduced its forecast for U.S. growth this year by 0.1% to 2%
Financial Derivatives Company Limited Global Update - World Economy Still on the Ropes
10
It cites concerns about the Euro crisis and failure of politicians to reach an agreement on tax and spending plans
U.S. factory orders shrank in June according to the Institute of Supply and Management
The first time since July 2009
Exports fell and new orders which gauge future factory activity dropped
Financial Derivatives Company Limited Global Update - World Economy Still on the Ropes
11
Strongest evidence that slowing Chinese growth is hurting the U.S. economy
The good news is that the pump price of petrol is now closer to $3 per gallon
Down 15% since April 2012
The E.U. is finally coming to grips with cobbling together a monetary union and fiscal responsibility
Financial Derivatives Company Limited Global Update - World Economy Still on the Ropes
12
There is plenty of work left to be done with some more pain before gain
Euro-zone unemployment climbed to 11.1%
Especially bad, is Spain with 24.6% and 21.9% in Greece
Purchasing Managers Index is down to 45.1 as most economies are contracting while others are reporting flat output
Financial Derivatives Company Limited Global Update - Emerging Markets Catching the Flu
13
Private consumption growth in rich countries is being undermined by deleveraging
And policy is providing little support
China’s investment-led economic model has resulted in an unprecedented boom in steel production
India reported a record current account deficit for Q1’12 of $21.7bn
Up from $6.3bn a year earlier
The Indian Rupee has declined by 21% in 2012
Financial Derivatives Company Limited
Sub-Saharan Africa – Oil price dip is a relief
15
Kenyan inflation dipped to a 15 month low of 10% in June
Food prices fell by 1.9%
A fifth consecutive decline
Fall in oil prices lead to a 0.35% decline in local fuel prices
Ghana reported a real GDP growth rate of 8.7% in Q1’12
Financial Derivatives Company Limited Sub-Saharan Africa – Oil price dip is a relief
16
Growth had slackened since 2011 after oil production commenced
Oil production from the Jubilee Field had declined from 78,000bpd to 70,000bpd
Optimists had projected that the field could produce 120,000bpd
Financial services expanded by 13.9%, personal services was up 88.2% while trade declined by (19.3%)
Financial Derivatives Company Limited Sub-Saharan Africa – Oil price dip is a relief
17
Poor performance in services and agriculture with high labour intensity has serious unemployment consequences.
Youth unemployment in Ghana is at 25.6% compared to Nigeria’s 23.9%.
Ghana is requiring that all foreigners must deposit $300,000 before being allowed to own shops in the markets.
They must also employ a minimum of 10 people.
Financial Derivatives Company Limited Implications for Nigeria
18
Sharp fall in oil price is having a magnified impact on fiscal revenues and widening the deficit to above 3% of GDP. The appreciation of the U.S Dollar is forcing a gradual slide in Nigeria’s terms of trade From 113.6 to 105 in 2012. The oil price decline and the currency impact has reduced Nigeria’s share of world exports from 0.63% to 0.58%. China now controls 17.5% of Nigeria imports, U.S. 9.1% and India 4.7%
Financial Derivatives Company Limited Oil Price and Revenue Decline Threat to macroeconomic stability
19
The correlation between oil price and forex revenue remains positive, holding production constant. The economy is highly vulnerable to oil price shocks
A $1 decline in oil price has 0.8% impact on revenue
Expressed as FR = 5.28 - 0.0125*P where FR = Forex inflow, P = Oil price (Bonny)
If oil price averaged $90pb in July
Total revenue will be $2.47bn from $3.24bn in April when prices were $118pb
Financial Derivatives Company Limited Oil Price and Revenue Decline Threat to macroeconomic stability
20
The relationship between oil price and external reserves accretion was positive with the model: ER= 29.12 + 0.031*P. where ER = External Reserves, P = Oil price (Bonny)
i.e. external reserves would decline by 0.1% for a $1 drop in oil price
If oil price falls to $90pb, external reserves should decline to $29.98bn from current $36.77bn
Financial Derivatives Company Limited Oil Price and Revenue Decline Threat to macroeconomic stability
21
The effect of oil price on exchange rate was positive and the model was: Exchange Rate = 152.18+0.07*Oil price.
i.e. for a $1 decline in oil price, the naira would depreciate by 0.8%. This implies the naira will come under pressure.
Financial Derivatives Company Limited Oil Price and Revenue Decline Threat to macroeconomic stability
22
Our research shows a negative correlation between Nigeria’s inflation and exchange rate with the model: ERa = 170.19 - 0.93*In. where ERa = exchange rate, In = inflation rate
This means, for a 1% rise in inflation, the naira would depreciate by 0.41%
Assume inflation rises to 14.5%
The naira could depreciate to N157.99/$1 in the official market and N165.95/$1 at the parallel market.
Financial Derivatives Company Limited 23 Policy Developments
Subsidy Removal!! Not how much, but when?
Financial Derivatives Company Limited Policy Update
24
Brace up for adjustment at 3 levels - Monetary, fiscal & structural
When oil prices fall below $100pb- monetary policy adjustment
Limited interest rate increases
A depreciation in the official rate of exchange from N156 towards N160/$1
Interbank and street rates down to N165 -170/$1
Financial Derivatives Company Limited Policy Update
25
If oil prices fall below $90pb, fiscal adjustment kicks in Deferring some capital expenditure items Trimming the recurrent expenditure and cutting waste Removal of subsidy Increase in excise taxes and some import duties If oil prices fall below $80pb, expect structural adjustments which will include Increased borrowing – external and internal Tinkering with exchange control regulations Currency devaluation etc
Financial Derivatives Company Limited 26 Leading Economic Indicators
Mixed but positive
Financial Derivatives Company Limited Leading Economic Indicators Indicators Apr’12 May’12 June’12 Apr/Jun (%) Oil Markets Spot price ( end of month) 118.85 103.85 99.31 16.44 Spot price (avg $’pb) 119.96 110.67 95.81 20.13 Production (mbpd) 2.18 2.13 - - Money Markets (End Period) OBB (%)p.a 11.38 11.58 14.54 316bps Overnight (%)p.a 11.83 12.17 15.08 325bps MPR (%)p.a 12.00 12.00 12.00 - T-Bill Rate(%)p.a 13.85 13.50 14.19 34bps CPI ( %) 12.90 12.70 - - External Reserves ($’bn) 36.48 37.68 36.77 0.79 Market Capt 7,030.48 7,037.23 6,895.29 1.92 Exchange rate (End Period) Official (N/$) 155.69 155.75 155.90 0.13 Inter-bank (N/$) 157.66 159.65 162.50 3.07 Parallel (N/$) 159.00 162.00 164.50 3.46
Financial Derivatives Company Limited 28 Leading Economic Indicators
29
Oil price decline continued in June
Oil production flat at an average of 2.1mbpd
Inflation eased to 12.7% in May
Money supply growth still subdued at 2.24% m-o-m in May
Year to date, M2 declined by 0.74% to N13.6trn
Interests rate are still high and above inflation rate,
Real interest rates are positive at 2%-3% p.a.
Financial Derivatives Company Limited Leading Economic Indicators
30
Naira weakened further in all market segments and set to decline
Principally due to bloated forex demand and speculation
External reserves have started trending downwards
After a 21-month high
Stock market dipped by 2.84% in June and is witnessing a bubble in July
Financial Derivatives Company Limited Money Supply- Subdued growth
31
Money supply sustained Money Supply m-o-m growth of 3.55% 14 10 13.5 8 to N13.6trn in May 13 6
Year to date growth of 12.5 4
(-0.74%) 12 2
M1 declined by 2.01% 11.5 0 to N6.54trn 11 -2 10.5 -4 Credit to private sector 10 -6
nov nov
picked up relative to net jul'11 jan'11 jan'12 feb'11 jun'11 feb'12 apr'12 oct'11 aug'11 sep'11 dec'11 mar'11 mar'12 may'11 may'12 april'11
domestic credit M2 (N' trn) M2 Growth rate (%)
•Source: CBN, FDC
Financial Derivatives Company Limited Inflation Rate Eases in May but risks remain
32
Nigeria’s inflation eased marginally to 12.7% in May
Core and food index increased contrary to increase in headline inflation
Disruption of the supply chain have contributed to the rise in food prices
Seasonality and security unrest in the north leading to draw down on inventory
Impact of new electricity tariff yet to be felt
Financial Derivatives Company Limited Inflation Rate Eases in May but risks remain
33
New import levy on wheat and rice will add to the price pressure Nigeria imported an estimate of 3.5m tonnes of wheat as at May 2012
Flour millers are likely to transfer burden of higher costs to consumers
We forecast inflation rate is likely to increase at 12.52% in June by a maximum of 0.6%
No change in Bread and rice prices after the levy Impact still delayed
Financial Derivatives Company Limited Monthly Inflation Rate (%)
34
16.0
15.0
14.0
13.0
12.0
11.0
10.0
9.0
8.0
7.0
6.0 May'11 Jun'11 Jul'11 Aug'11 Sept'11 Oct'11 Nov'11 Dec'11 Jan'12 Feb'12 Mar'12 Apr'12 May'12
Headline Inflation All items less farm produce Food Inflation
•Source: CBN, FDC
Financial Derivatives Company Limited Exchange Rate - Naira Weakens as Inflation Eases
35 Is this coincidental? Data shows that naira depreciation is attributable to rising demand pressure A total of $2.75bn was sold in June, 69.75% increase Naira weakened by 0.1% to N155.9/$1 at Dutch auction in June But ytd, naira has appreciated by 0.51% January 3- N156.7/$1 CBN can use naira depreciation as an alternative to raising interest rates Downside effect is inflationary pressures Firms will have to pay more for inputs leading to increase in production costs
Financial Derivatives Company Limited Forex Market - Naira Weakens, Reserves Fall
36
Forex (N/$) External Reserves ($'bn) 38.0
#(( #" #(& + 37.0 #($ * #(" ) #'* ( 36.0 #'( ' #'& & 35.0 #'$ % 34.4 #'" $
#&* # 34.0 #&( " "$ ") #$ #) $$ $) "% "* #% #* $% $*
"% "* #% #* $% $* 33.0
32.0 Jan'12 Feb'12 Mar'12 Apr'12 May'12 Jun'12
•Source: CBN, FDC
Financial Derivatives Company Limited External Reserves -Slowing accretion
37
Nigeria’s external reserves are gradually declining
$36.77bn in June; a drop of 2.42% m-o-m
Decline is attributable to CBN’s use of reserves to support the naira
Speculative purchase of Rice and Wheat ahead of the new levy
Fixed income investors shorting the Naira in response to loss of CBN autonomy
Financial Derivatives Company Limited Oil Market
38
Oil Price Movement Global oil prices still trending downwards 130 Brent Crude: $99.33pb 125
Bonny Light: $100pb 120 WTI: $87.08pb 115 OPEC keeps output quota unchanged (30mbpd) in a 110 bid to stem further price 105
decline 100
Saudi Arabia will need to cut 95 down supplies to avoid 90 causing imbalance in market Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun'12 EU and US sanctions to affect Iran’s oil supply OPEC($pb) Brent($pb) WTI($pb) Bonny ($pb) •Source: OPEC, EIA, FDC
Financial Derivatives Company Limited 39 Business Proxies
Suffering and smiling
Financial Derivatives Company Limited Business Proxies -Mixed trend
40
Value of cheques in Lagos rose by 12.16% in May as business activities improved Value of cheques – N1.61trn Volume of cheques- 3.76m
Forex sales increased by 69.75% to $2.75bn due to rising demand as Oil importers resume activities Speculative imports of wheat and rice
Oil rigs remained flat at 15 rigs
Financial Derivatives Company Limited Business Proxies - Mixed trend
41
Retail sales performance was flat in June
Slight price hike in vegetables, pepper
Inventory remains flat
90% of transactions still cash-based
POS terminals still affected by telecom downtime
Merchandisers are complaining about high transaction cost of electronic payment
Consumers still resistant to change
Financial Derivatives Company Limited 42 Financial Derivatives Company Ltd. Business Proxies
43
Value of Cheques Forex Sold @WDAS
3,500.00
1,800.00 4,000,000 3,000.00 1,600.00 3,500,000
1,400.00 2,500.00 3,000,000 1,200.00 2,500,000 2,000.00 1,000.00 2,000,000 800.00 1,500.00 1,500,000 600.00 1,000.00 1,000,000 400.00
200.00 500,000 500.00
0.00 0 jan'12 feb'12 mar'12 apr'12 may'12 -
Value (N'bn) LHS (Volume' m) RHS
•Source: CBN, FDC
Financial Derivatives Company Limited 44 Aviation Sector
Are the skies safe??
Financial Derivatives Company Limited44 Global Aviation – Jet fuel prices drop
45
IATA continues to forecast net post tax profits for the industry to be $3bn in 2012.
Just 0.5% of Revenues
Worldwide RPKs continue to expand at an above trend of 6%
The stronger passenger markets are in Asia, South America and the Middle East
Asset utilization in the passenger markets has been high and a key driver of profitability
Financial Derivatives Company Limited Global Aviation – Jet fuel prices drop
46
Air freight yields show a slight increase in Q2’12
Stronger volumes have improved revenues
Though yields remain largely suppressed as excess capacity continues to be an issue
Middle Eastern airlines saw the majority of the volume gains in the freight markets
Asset utilization has been declining in the air freight industry as new aircraft enter the market.
Financial Derivatives Company Limited Global Aviation
47
Kenya Airways signs financing deal for 20 new aircraft with AFREXIM
10 Embraer 190s
9 Boeing 787-800 Dreamliners
1 Boeing 777-300ER
The airline plans to spend $3.6bn over the next five years
The airline expects to increase its fleet size from 34 aircraft to 119 and destinations to 115 from 57 by 2021
The airline also plans to launch a low-cost subsidiary to manage regional flights
Financial Derivatives Company Limited Regional Aviation - Benefits of Air Nigeria’s absence
48
Impact of Air Nigeria’s suspension of regional operations: ASky reaping benefit of the carrier’s absence in the West African routes RwandAir and South African Airways also to benefit from stoppage of Air Nigeria’s proposed Jo’burg route
Air Cote d’Ivoire expected to start operations before summer’s end Will compete with Arik and ASky on the regional routes
Carrier will collaborate with Kenya Airways and KLM to compete with the Star Alliance carriers
Financial Derivatives Company Limited Domestic Aviation - Problems at home
49
Domestic carriers struggle financially despite declining jet fuel costs Carriers should have benefitted from low oil prices
Two of the three major carriers continue to operate domestic/regional routes Air Nigeria suspended due to financial distress
Consolidation between Arik and Aero is a possibility Aero has access to AMCON funds But can you merge debt with debt?
Financial Derivatives Company Limited Impact of Aero/Arik Consolidation
50
Merged capacity will provide economies of scale
Financial and Operational restructuring
Possible rationalization of routes
Re-pricing of air fares
Financial Derivatives Company Limited Domestic Aviation -Capacity increase in foreign routes
51
Capacity increase in international routes
Etihad – Daily flights from Lagos to Abu Dhabi
Air France – Daily flights into Abuja
Kenya Airways – 3 flights/week to Abuja (effective Sept. 5)
Though the capacity increase has been neutralized by:
Delta Airlines and KLM pulling out from the Abuja routes
Financial Derivatives Company Limited Domestic Aviation - Competition between alliances
52
Abuja Battleground Star Alliance Sky Team British Airways (BA) Lufthansa – 7 flights Air France – 7 flights 7 flights
Ethiopian Airlines – 3 Kenya Airways – 3 flights flights
Because of security concerns BA crew are sleeping in the aircraft But will now fly to Lagos for crew change on the Boeing 777 Financial Derivatives Company Limited Domestic Aviation
53
First Nation Airwaystemporarily suspendsall its operations Its fleet of three A320s have been ferried to the EU for maintenance
Air Nigeria grounded by NCAA The airline is accused of not remitting taxes worth N4.8 billion to the Federal Inland Revenue Service (FIRS) Managing Director arrested as a result Domestic and regional operations have been suspended due to a financial audit conducted by the aviation authorities
Financial Derivatives Company Limited Domestic Aviation - Air Nigeria issues
54
Air Nigeria will not operate its Johannesburg route as originally planned
The carrier is unable to honor its agreement with Egypt Air for the second A330-200
The aircraft was to be used for the Johannesburg route
It is still currently parked in Cairo
The airline reiterates that it is not interested in merging with another airline
Financial Derivatives Company Limited Domestic Aviation
55
BSP scheme suffers its largest default (N470m )
Defaulter was International Express, a travel agency
Major airlines affected were KLM, Air France & BA
KLM was hit hardest; severely affecting its business with Shell
Affected airlines were paid after the obligatory 60 days by the scheme’s sole insurer “Leadway Insurance”
It is suspected that the defaulting travel agency diverted funds for other activities
Financial Derivatives Company Limited
Domestic Aviation
57
Leadway Insurance has notified IATA about their intentions of exiting the BSP scheme
Dana Airhopes to resumeoperations
Subject to clearance by the Nigerian Civil Aviation Authority (NCAA)
Oyo State Governor disclosesplans to convert Ibadan airport into a cargo airport
An Abuja Court of Appealrulesthat FG cannot take control of MMA2
Financial Derivatives Company Limited Domestic Aviation
58
Aero announces the commencement of daily Abuja- Uyo flights effective 9 July 2012
Arik Air and IRS Airlinessuspendtheir flight operations to Kaduna
Both airlines cite the insecurity in Kaduna State as the cause
Financial Derivatives Company Limited 59 Real Estate Update
Yet to pick up
Financial Derivatives Company Limited Real Estate Market - Yet to pick up
60
Real estate market is still sluggish
No increase in supply of residential properties
Supply constraint is beginning to reflect in increasing rent
Residential service flats in Victoria Island and Ikoyi are inching up marginally in price
Delinquency rates are still above 20% in Ikoyi and VI
Financial Derivatives Company Limited Real Estate Market - Yet to pick up
61
The completion of the Ajah intersection on Lekki expressway will increase housing supply in the downtown Lagos neighbourhoods
The lekki –Ikoyi toll bridge will discount Queens drive and Alexandria property values by 15-20%
Financial Derivatives Company Limited 62 Stock Market
Confusion in the asylum
Financial Derivatives Company Limited62 Global Markets – Still up but Swimming Directionless
63 Global IndicesYTD Return
NSE ASI 4.19%
FTSE JSE 5.39%
GHANA GSE 7.89%
NAIROBI NSE 20 15.57%
EGYPT EGX 30 29.99%
DJI 5.42%
-4.23% BOVESPA
NIKKEI 225 6.52%
INDIA BSE SENSEX 30 12.79%
DAX 8.78%
FTSE-0.02% 100
S&P 500 8.31%
NASDAQ 12.66%
-10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%
Market pace slowed in Q2 Hesitant Q2 following a strong Q1 YTD Performance in the green as a result of bullish Q1 Financial Derivatives Company Limited What we said in June
64
Is it time to buy this dip?
Yes and No
Looking out the next 6-12 months, we see the market as being higher than it is now
In the short run, it is a bad environment with 50/50 odds of breaking out below the 200 day moving average of 20,952.61
Financial Derivatives Company Limited June – A see-saw market 22,200.00 7,100.00
22,000.00 7,000.00 65 21,800.00
21,600.00 6,900.00
21,400.00 6,800.00 21,200.00 6,700.00 21,000.00
20,800.00 6,600.00 20,600.00 6,500.00 20,400.00
20,200.00 6,400.00 01-Jun-16 01-Jun-16 04-Jun-16 07-Jun-16 10-Jun-16 13-Jun-16 16-Jun-16 19-Jun-16 22-Jun-16 25-Jun-16 28-Jun-16
•Source: NSE, FDC NSE INDEX MARKET CAPITALIZATION (N'b)
Market see-sawed its way through June Market gripped by Schizophrenic attack as SEC DG is sent on leave and new President resumes at NSE 3 SEC DGs in 1 week, 2 presidents of NSE Council Movement without motion Financial Derivatives Company Limited What Are the Major Events in June?
66 Market trended southward breaking below the 200 days moving average on the 8th of June
Marginal correction and short rally leading to market to close at 21,542.23 points
Market lost 212 basis points for the month Turnover at historically thin level
Average daily value traded for the month was N1.49bn after stripping out the abnormal trade in Union Bank and Law Union & Rock Insurance
Of the 21 trading days in the month, only 5 days had turnover of over N2bn Financial Derivatives Company Limited Volumes up, value down, What Next?
67
Despite the huge trade in UBN shares, market turnover could not hold up to May levels Turnover declined by 31.1% Total Volume traded however increased by 24.4%
A result of heavy trading in Law Union & Rock Insurance and UBN Liquidity remain the bane of the index
No significant change in turnover expected till late July
Interim dividends to save the day
Financial Derivatives Company Limited June 27th- A Day of Abnormality
68
Market turnover increased astronomically by ~896%
A result of N15.8bn cross trade in Union Bank of Nigeria
Company’s right issue to raise N9.6bn failed as subscription was well below the 25% threshold
Subsisting structure before the right issue:
Union Global Partners Limited (65%);
AMCON (20%);
Existing shareholders (15%)
Change in Bank ownership structure as core investors increase stake Financial Derivatives Company Limited Dearth of IPOs - A Global Phenomenon
69
88 IPOs between 2006 and 2008 No new Listing from 2009 – 2011 th Austin Laz listed on 29 of February Total Volume traded till date is a low 11million units Turnover of N22.6million Stripping out the block trade of N17.1million of the 13th of March leaves total turnover at a meagre N5.5million th Fortis Microfinance Bank Listed on 20 of June Total volume traded of c9million units in 4 trading days Turnover of N45.1million UACN become major investor in Livestock feeds
Financial Derivatives Company Limited 70 Financial Derivatives Company Ltd. Dearth of IPOs – A Global Phenomenon
71
•Global IPO have also fallen from 2008 highs •Equity investment by Pension funds falling while Bond investments are on the rise Financial Derivatives Company Limited PFA Asset Allocation
2011 May 2012 PFA equity flow decline by 2.2 Asset Classes % % Local and Foreign Ordinary 10.7 8.5 percentage points while bonds Shares flow increased by 3.2 FGN Securities 61.6 65.0 State Debt Securities 6.9 6.5 percentage points Corporate Debt Securities 2.4 2.6 20 states have fully complied Local and Foreign Money 14.9 14.1 Market Securities 9 states work in progress Open/Close-End Funds 0.9 0.9 Real Estate Properties 1.2 0.9 7 states yet to make a move Cash and Other Assets 1.4 1.5
Total 100.00 100.00 72 Half Year Score-card
73
Liquidity remains an issue with total volume and value traded for the first half of the year at 50.6bn units and N347bn respectively
History not on our side
The index has generally performed badly in the second half of the year Average first half return between 1986 and 2011 is 16.9% while average second half return is 7.5% Between 2008 and 2011, market gained 1.15% in the first half of the year while second half return was -21.4%
Financial Derivatives Company Limited This time is different
74
Valuations, especially of Nigeria Banks are compelling and strengthening
Banks balance sheet are now at a level that can be considered clean
Consumer sector not lagging behind
Strong earning growth from listed companies
Market now responding to earnings release
Low local market participation Not expected to reverse soon
Financial Derivatives Company Limited Investment Criteria for H2’12– One up on NSE
75
PEG Ratio below 1.2 Zenith Bank, Guaranty Trust Bank, Cadbury
Five years earnings growth of 15 – 30% First Bank, Presco, Okomu
Debt ratio < 33% - Debt is the weak link that snaps you Cadbury, Redstar, Guinness, Zenith
Institutional ownership between 5 – 60% Okomu, Presco, Lafarge Wapco, 7up
Dividend Yield – Dividend yield and bond yield differential less than 8% FCMB, Fidelity, NASCON, Okomu, Fidson
Financial Derivatives Company Limited Outlook - Schizophrenic
76
See-sawing to continue in July
Policy paralysis still keeping out retail investors
Downward trend to continue although at a lower rate
However, a trend reversal should begin from mid July
Results from the banking sector will stimulate a short bullish run
Naira depreciation and persistent inflationary pressure means interest rate will remain high
We expect a positive return between 2 – 3% for July
Financial Derivatives Company Limited 77 Political Update
“Getting to power is easy, holding on to it is tough”
Financial Derivatives Company Limited Political Update
78
It is confusing as to what Boko Haram wants Theocracy, democracy or anarchy
Getting to power is easier than holding on to power
Staying in power and extending tenure more complex than it looks
Link between nuisance value and power in Nigeria is a reality NADECO led to Yoruba presidency MEND led to south/south leadership Boko haram ???????
Financial Derivatives Company Limited Political Update
79
Military command plus intelligence bad for security
GEJ drops his top security chief staff amidst rising unrest in the north
New security adviser, Dasuki, a caliphate insider
Expected to use his network to rein in the dreaded terrorist group
General feeling of hopelessness pervades the society
Financial Derivatives Company Limited Political Update
80
Change of guard at the NNPC remains an attempt to sway public opinion Contract awarded to an unknown ‘Vulcan group’ worth $4.5bn raises a few eyebrows Cronyism replaces corporates in both the upstream and downstream sectors Strong link between cronyism and political patronage In response the ACN/CPC are forging a North/west alliance Pitching major tribes against ethnic minorities
Financial Derivatives Company Limited Political Update
81
Edo state governorship elections will be the test run for the alliance
Bargains being made with the state governors over the SWF
SWF will run concurrently with the ECA
An initial amount of $1bn
Doubts still remain as to the workability of the SWF
Financial Derivatives Company Limited Political Update
82
Sharp descent from hope to despair in one year
Current administration underperforming in all levers of control
Misery index which is the sum of inflation and unemployment is at 36.6%
The administration needs to be more efficient in the execution of its economic programmes
Financial Derivatives Company Limited
85
Financial Derivatives Company Limited
86
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88 Financial Derivatives Company Limited 89 Outlook
Financial Derivatives Company Limited July Outlook
90
PIB will be submitted to the NASS
Interest rates unchanged in July
Inflation will increase marginally in June
Quality of Telecom services to remain a challenge
Naira to remain under pressure in the forex market testing N166 in the parallel market
Stock market fizzle will continue though July
No investor enthusiasm
SWF team will be announced
Financial Derivatives Company Limited Corporate Humour
91
To have lost your reputation is to be dead among the living
- S. H. Simmons
On a Plumber’s truck: “We repair what your husband fixed.: - Unknown Author
Life is what happens to us while we are making other plans.
- Thomas La Mance
Financial Derivatives Company Limited Corporate Humour 92
What is right is often forgotten by what is convenient. - Bodies Thoene
Fools take to themselves the respect that is given to their office.
- Aesop
At an optometrist’s office: “If you don’t see what you’re looking for, you’ve come to the right place.”
- Unknown Author
Financial Derivatives Company Limited Corporate Humour 93 The enemies of the future are always the very nicest people. - Christopher Moreley
On another Plumber’s truck:: Don’t sleep with a drip. Call your plumber.”.
- Unknown Author
Good news rarely comes in a brown envelope.
- Henry D’Avigdor Goldsmid Financial Derivatives Company Limited Corporate Humour 94
Always bring money along with your complaints. - Plautus
No one means all he says and yet very few say all they mean.
- Henry Adams In a Non-smoking Area: “If we see smoke, we will assume you are on fire and take appropriate action.”
- Unknown Author
Financial Derivatives Company Limited 95 Thank you for your attention
Bismarck J. Rewane, MD/CEO Financial Derivatives Company Ltd. Lagos, Nigeria
Financial Derivatives Company Limited