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FDC Market Update !

Cross sector commentary

Budget Review

Economic Review

FDC Quarterly review

Volume 2 No. 6                                                                                                                      May 17, 2000

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M2, the wider definition of money supply grew by 32.4% in 1999 as against a target growth rate of 16%. Our take is that the money supply aggregates will increase by as much as 40% in 2000. The bunching of capital expenditure warrants for the first three quarters of 2000 in early June is bound to increase money supply saturation and velocity of circulation, thus spiking inflation. In the interbank market, rumours of a possible second dip in the MRR and T/Bill rate by the CBN is weighing down on Treasurer sentiment, thus forcing call rates to as low as 14.5% p.a. The CBN increased the T/Bill amount on tender by 124% to N47.076bn to cover a rollover of a previous allotment 3 months earlier. Investors’ appetite at N31.87bn was large enough to gobble 68.8% of this Jumbo issue.
 

The stop rate on primary issues declined to 15.80% p.a, bringing the true yields down by 20 basis points.
The average NIBOR rates for all maturities, which climbed temporarily last week, declined again to 15.8% p.a.
Banks continue to resist dropping their effective  lending rates with prime rates still hovering around 20% pa.

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The Naira slide continued after a roller coaster movement by the CBN last week. The currency is trading at N101.77 in the official market hovering against its recent low of N100.87. In the parallel market the Naira lost considerable grounds trading at N104.7 confiming traders skepticism about its limited upside potential, the story remained unchanged i.e the Naira will weaken further after the budget expenditure kicks in. We continue to hold on to our position that the Naira will test 105 in the official market in June while the parallel market will reach 110.00 ( less than 5% arbitrage tolerance of the CBN.) The forex demand profile at the IFEM continues to bother the CBN.  Weekly demand reached $181m with annual cumulative demand at $2.13bn. Some analysts estimate that total demand for the year could top $6.5bn, (31.6%) higher than 1999. The increase by 50 basis points in US interest rates makes yields on dollar assets more attractive to investors. Last week oil companies approximately $31million in the market while the CBN depreciated the Naira by as much as 0.95% (0.94%) in two days, an unprecedented move in recent times.



We continue to expect further depreciation based on capital flight of the commission on contracts awarded under the 2000 budget
 

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The stock market recorded a marginal growth of 0.28% in the last month inspite of good financial reports by some leading companies. Investors are skeptical about earnings’ sustainability in the face of fierce competition both domestic and international Investors are also worried about the impact of the delay in budget approval of the fortunes of companies in an economy where government expenditure constitutes more than 60% of GDP
Even robust earnings from reporting companies failed to lift the market. With exception of John Holt that reported a loss of N1.77bn, profits from reporting bluechips all met investors' expectation


Diverting attention away from political concerns, and helping the market slightly up by 0.47% to close at 5877 points.

Controversy continues to surround the privatisation process, especially in the selection of core investors. The concept of management buyouts is becoming prevalent in the exercise. It is widely believed that insider managers have a proper understanding of the intrinsic value and earnings potential of the companies, when freed from government control. Some others feel that the managements are being defensive because of possible investigations into past malpractices. The acrimony over the Dangote bid for the Benue Cement continues unabated. The decision, which favoured Dangote, the versatile business-guru as the core investor has evoked a negative reaction from the ethnic indigenes of Benue state. On the international scene, Lafarge’s bid for Blue Circle failed, putting to rest the speculation of a cartel emerging in the Nigerian cement industry. Similarly, Air Liquide and Air Products are expected to drop their bid to take over BOC Group due to the inability to satisfy Anti-trust concerns. Sun Insurance is to raise N85m through a combination of rights issue and offer for subscription.

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