This is a brief summary of the economic events that occurred this week in the global and domestic space. This report also provides investment strategies for investors in the coming week.
Global Economy
Earlier this week, the BRICS (Brazil, Russia, India, China, South Africa) member nations convened for their 15th anniversary summit in South Africa, which commenced on the 22nd of August 2023 and ended on the 24th of August 2023. The summit held significant historical importance, addressing vital issues including the dominance of Western global influence and the promotion of a multipolar world. Noteworthy discussions included the parameters for potential expansion of the BRICS bloc, strategies for bolstering local currencies through enhanced inter-trade relationships, and the establishment of a shared gold-backed financial system. Concluding the summit, a noteworthy development emerged as six additional countries – Saudi Arabia, Argentina, UAE, Iran, Egypt, and Ethiopia, were welcomed into the organization out of 40 Countries which expressed their interest. Their official membership is scheduled to take effect in January 2024. Also, the expanded BRICS coalition will wield control over approximately 80% of the global oil production. This development is expected to have a profound impact on the stability of the Petrodollar, as the BRICS alliance aims to cultivate trade between member nations using their local currencies, facilitated through the New Development Bank (commonly known as the BRICS Bank). With this expansion, the collective GDP of the BRICS nations now constitutes 36% of the world’s total GDP, representing around 40% of the global population. Additionally, it’s worth highlighting that the Russian President, Vladimir Putin has indicated his willingness to proceed with the Black Sea grain deal, conditional on certain requirements being met. He also conveyed that, should these conditions not be fulfilled, Russia would extend assistance to Africa by providing free grain.
Domestic Economy
Earlier today, the Nigerian Bureau of Statistics (NBS) released the Nigerian Gross Domestic Report (GDP) for Q2:2023. GDP grew by 0.20% QoQ to 2.51% (vs. 2.31% in Q1:2023). However, this growth rate is lower than the 3.54% recorded in Q2:2022, following economic headwinds experienced during Q2:2023. The positive performance was driven by growth in the Services and Agriculture sectors which recorded growth rates of 4.42% and 1.50% respectively in Q2:2023. Notably, the Oil sector further declined to -13.43% in Q2:2023 (vs. -4.21% in Q1:2023) while the Non-Oil sector grew by 0.81% QoQ to 3.58% in Q2:2023 (vs. 2.77% in Q1:2023). Furthermore, the National Bureau of Statistics (NBS) released improved employment data indicating that Nigeria’s unemployment rate dropped from 33.1% in Q4:2020 to 4.1% in Q1:2023 (vs. 5.3% in Q4:2022). This significant decline is following the implementation of a new methodology which involves surveying 35,520 households and aligns with International Labor Organization (ILO) guidelines, providing quarterly national-level and annual state-level results.
Equities and Stock Recommendation
This week, the Nigerian Equities Market rebounded from its bearish outing last week, as the NGX All Share Index (ASI) advanced by 126bps to 65,558.91 points. This is on the back of gains recorded in four (4) out of the five (5) trading days of the week. Consequently, the market’s year-to-date returns went up to 27.92% from 26.33% last week. The Consumer Goods (+11.58% WoW) and Insurance (+1.22% WoW) sectors recorded impressive gains, while the Banking (-3.57%), Industrial (-0.01% WoW) and Oil and Gas (-2.40%) sectors closed bearish. This week, DANGSUGAR (+35.7% to NGN47.50), CWG (+31.6% to NGN5.00) and NASCON (+27.9% to NGN44.75) were the top gainers while TANTALIZER (-27.5% to NGN0.29), REDSTAREX (-17.4% to NGN2.89) and DAARCOMM (-15.6% to NGN0.27) topped the losers’ chart. In the coming week, we expect that investors will continue to engage in profit-taking activities.
Fixed Income
This week at the primary NTBs auction, the average bid-to-cover ratio fell by 34bps to 5.09x (vs. 5.43x at the last auction), an indication of a reduction in the demand for the instruments. Consequently, we observed a 215bps surge in average stop rate to 9.05% from 6.90% at the previous auction. Notably, stop rates for 91-day bill, 182-day bill and 364-day bill instruments recorded increases of 19bps, 210bps and 417bps each to 5.19%, 8.00% and 13.97% respectively. Despite the bearish sentiment at the primary market, the secondary Nigerian Treasury Bills market closed the week on a bullish note as average yield fell by 20bps WoW to 8.19%. However, the secondary bond market ended the week on a negative note as average yield climbed 27bps WoW to 14.10%. This is on the back of sell-offs in the MAR-2050 instrument (yield up 8bps).
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