Thursday, 9 February 2012

Weekly Economic & Business Review :: 4thWeek in 2012

NSE Proposes N18m for Broking License
The Nigerian Stock Exchange (NSE) has proposed N17.9million as fees for obtaining dealing membership licence and operating a stockbroking firm in the nation's capital market. These fees are however, outside the stipulated N70million minimum capital requirement by the Securities and Exchange Commission (SEC). According to the draft guidelines, any company applying to be registered (for dealing membership licence and operating a stockbroking firm) it would have to pay N15million dealing membership licence fees; N1million
contribution to Investment Protection Fund; N0.78million Automated Trading System (ATS) dealing engine; N995thousand ATS Trading System upgrade; N100thousand Trade Guaranty Fund and N25thousand Central Securities Clearing System (CSCS) eligibility fee. The proposal was presented to the chief executive officers of stockbroking firms last week for their contributions before it would be made public and adopted in the market.

CBN extends common accounting year-end to MfBs, others
The Central Bank of Nigeria (CBN) has ordered the adoption of a uniform accounting year end for all microfinance banks (MFBs), primary mortgage institutions (PMIs) and other finance companies (FCs). The objective is to avoid all forms of regulatory arbitrage and provide a level playing field for all operators. Effective December 2012, all MFBs, PMIs and FCs (including banks and discount houses) in the country are required to adopt December 31 as accounting year end. During the transition period, financial institutions are allowed to prepare annual financial statement for a maximum accounting period of 18months and a minimum of 6months, in line with accepted accounting standards. Financial Institutions whose accounting year-ends is 31st December should forward full year financials for CBN approval not later than 4 months after year-end. Others with year-ends between January and May 2012 are expected to submit the normal audited accounts (12 months) for CBN approval and thereafter forward audited accounts for the pro-rated period to 31st December 2012.

Jan CPI at 6.4 pct y/y, index rebased to 2009
According to the Central Statistics Office (CSO) Zambia's inflation moderated to 6.4% in January 2012, down from 7.2 recorded in December 2011 - the lowest rate recorded over the years. The sharp fall in inflation was precipitated by recent rebase of the inflation basket to 2009. The rebased CPI comprises of 12 main groups and based on a revised basket of products, weights, index reference period and new software. Annual food inflation was 6.1% in January 2012, while non-food inflation stood at 6.8%. The Zambia government plans to trim off three zeros from the kwacha (ZMK), making it ZMK5.09/US$, which is the January 26, 2012 exchange rate. Analysts are of the opinion that inflation may inch up in the near–medium term as the currency rebasing takes effect.

GDP growth fall to 12%
Ghana's Gross Domestic Product (GDP) slowed to 12% in Q3 2011 from 17.6% recorded in Q2, according to Ghana's statistics office. The decline in GDP of the West Africa's fastest growing economy and newest oil producer was against market expectation of 13.8%. Significant drop in net indirect taxes (recorded a 33.4% decline) fishing, financial and insurance activities for the period may have led to the drop in growth. The industry sector recorded the highest growth of 32.7%, followed by the services sector at 5.8% and agriculture 5.2%.

IMF revised down global growth forecast amid rising risks
The International Monetary Fund (IMF) revised downward the outlook for World economy growth in 2012. The Funds new forecast is 3.3%, down 4.0% it said in September 2011 forecast of 4% to 3.3% in 2012. It also warned that persistent debt crisis in the Eurozone may further derail the world economy. Despite the weaker global outlook, the United States growth stance remained unchanged at its prior forecast of 1.8%. According to IMF the downward revision of the global economy, is driven primarily by the intensifying debt crisis in Europe, as all 17 nations of the euro zone are expected to experience mild recession this year. The euro area economy is now expected to contract by 0.5% in 2012, down from a projected growth rate of 1.1%.

United Kingdom
GDP Contracts 0.2% in Q4
According to preliminary estimates from the Office for National Statistics (ONS), UK gross domestic product (GDP) shrank by 0.2% in Q4 2011, down from 0.6% expansion recorded in Q3. This marks the 1st quarterly decline in GDP since Q4 of 2010. The contraction in UK economy was driven mainly by 0.9% reduction in manufacturing, 4.1% drop in electricity and gas production due to decline in consumption amid weather condition, and 0.5% fall in construction sector. In addition, the service sector which accounts for two-thirds of the economy, grounded to a halt after a 0.7% improvement recorded in Q3. Recent austerity measures implemented by the UK government coupled with the November strike action, may have contributed to the current position. On the other hand, the International Monetary Fund (IMF) revised downward its growth forecast for the UK economy in 2012 from 1.6% to 0.6%. The Bank of England (BoE) at its Monetary Policy Committee meeting held on January 12, 2012 recently maintained its benchmark rate at 0.5% and the size of the Asset Purchase Programme at £275billion. Analysts are of the view that policy makers should give support to the deteriorating economy amid global recession fears and expect another round of quantitative easing from BoE.

United States
Fed to keep inflation at a 2% annual rate target, No rate hike until 2014
The Federal Reserve has revealed plans to keep the US consumer price inflation at a 2% annual rate in the long term and has now joined most central banks in setting an explicit inflation target. The 2% target is expected to keep longer-term inflation expectations firmly anchored, thereby fostering price stability and promoting maximum employment in the face of significant economic turbulence. According to the Fed, the sluggish economy and restrained levels of inflation are likely to warrant near zero interest rates at least through late-2014. Meanwhile, Fed had earlier announced conditional plans to keep the rate low until mid-2013.

The Stock Market
Equities recorded a week-on-week decline for the period ended January 27, 2012 to reverse previous uptrend. Although the bulls returned to the market at the last 2 trading days of the week, it was not enough to reverse the decline in market indicators earlier in the week. This is due to increased sell orders in equities at lower prices on expectation of further drop in prices. The relative systemic tightness in liquidity may have also supported the trend in the market. The Nigeria Stock Exchange All Share Index (NSE ASI) dipped marginally by 0.35% week-on-week at the end of trading session to close at 20,892.66points from 20.820.32points the previous period. Similarly, market capitalisation depreciated by 0.37% to close at N6.58trillion. While market direction remains generally uncertain, we expect investors to continue to take position in stocks with increasing likelihood of favorable financials.

Stock Market Trend

FGN Securities
Negative investor sentiments for fixed income securities aptly manifested as bond yields on the average trended upward across all maturities for the week ended January 27, 2011 to reverse the decline the preceding week. The uptrend was on the back of low demand for fixed income securities (as bond prices fell), despite lingering bear-hug at the equity market. Consequently, the Access Bank Government Bond Index recorded a decline of 0.74% to close the week at 1,458.88points. This week, the Debt Management Office (DMO) sold N89.79billion in 10-year sovereign bonds at its first debt auction for the year with yields higher than at its previous auction. Expectations are that yields may move higher in coming days given our view that domestic interest rates may sustain recent high. Also, MPC decision may give further direction to the market.

Systemic tightness in market liquidity continued for the week ended January 27, 2011. Continued rise in Nigeria Inter-bank Offered Rate (NIBOR) was driven mainly by outflows of about N172billion from NNPC coupled with N78.5billion for FX purchases at WDAS. Also outflow of about N70billion in the regular Bond auctions for the month of January supported market trend. Net inflow of N16billion from maturing bill was not enough to ease the heightened liquidity pressure at the money market. Open Buy Back (OBB) rose from 14% to 15%, while Overnight Placement and Call NIBOR rose from 14.25% and 14.41% to 15% and 16%, respectively. A total outflow of about N50billion worth of T-bills will be issued at the Open Market Operations (OMO) this week and about N70billion for FX purchases. Expectations are that rates would likely remain around current levels except anticipated inflows of about N250billion from FAAC hits the system. Also, decision of the Monetary Policy Committee (MPC) meeting due to hold on Monday and Tuesday (30th -31st January 2012) may give further direction to rates.

Average Deposit and Lending Rates
On the average, deposit and lending rates were relatively stable across maturities for the week ended January 27, 2011 amid liquidity tightness at the interbank market. We expect deposit rates to inch upwards as banks move to attract more deposits given tight liquidity situation. Similarly, average lending rate is expected to move slightly upward, as financial institutions seek to at least maintain net interest margins.

Foreign Exchange Market
The Naira weakened against the US dollar at the interbank market by 0.06kobo to close at N161.01/US$ for the week ended January 27, 2012. On the other hand, the local currency experienced positive fortune at the BDC and parallel markets with gains of N1 and N2 to close at N163/US$ and N164/US$, respectively. It however remained unchanged at the CBN Wholesale Dutch Auction (WDAS). At the WDAS on Wednesday January 25, 2012, the naira leapt by 0.15kobo to close at N156.85 to a dollar; up from the N157 to a dollar as at end Monday. The CBN offered $250million to the market, the same volume it supplied on Monday. The depreciation of the local currency at the interbank segment of the FX market was due to increased dollar demand by importers as they resume full business operations following the recent labour strike. Dollar sales of about $204million by oil companies did little to ease off demand pressure for the greenback. This week, Naira should continue to trade within the N155/US$ ±3% amidst resolute FX management by the CBN and anticipated Dollar sales by other oil companies.

Update on Commodities Market
Crude oil prices declined while Natural Gas and Precious metals prices increased to close for the week ended January 26, 2012. Oil prices (OPEC) trended downward by 0.8% to close at $110.7 from $119.59 per barrel recorded the previous week. The fall in oil prices was due mainly to fall in the global stock markets amid the meandering trend in the US dollar against major currencies. Gold and silver prices rose by 3.76% and 9.26% week-on-week to close at $1,720.65 and $33.47 per ounce, respectively. The uptick in Gold and Silver prices was due mainly to the announcement by FED to keep interest rates low until late 2014. This announcement rekindled speculation around a possible Stimulus Plan in the months ahead. Concerns over the widening Eurozone debt crisis and slowing global economic growth may have also supported the direction of movement in commodities prices. If this trend persists, commodity prices may continue to show divergent trends with the dollar fortune driving sentiments.

In financial economics, securitisation referred to the act of converting assets into tradable securities usually for cash. The concept is based on international market practices, where firms collect property, and subsequently transfer assets to a unit or vehicle, which has financed the purchase of the property by issuing securities. Securitisation in recent time has emerged ingeniously as a means of financing especially with the rate of technological innovations in the financial world. The process starts with the creation of a special purpose vehicle (SPV) which would hold the underlying financial assets. This is followed by the sale of the financial assets by the holder/originator to the SPV, which would in effect hold and realize the assets. Finally, securities are issued by the SPV to investors against the financial assets held. The key advantage of the process is that, it relieves the originator of the financial assets the pressure of capital adequacy, by taking off assets from his balance sheet and providing him with immediate liquidity.

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