Weekly Market Commentary

Global Market Update

Broad Based Moderation in Global Stock Prices

Based on data from the United States’ Bureau of Economic Analysis (BEA), real GDP in the US grew at an annual rate of 2.8% in Q3 2024 while the Personal Consumption Expenditures price index, an alternative measure of inflation, increased 2.1% from 2.3% in the prior month. The positive PCE data, which is close to the 2.0% inflation target of the Federal Reserve, strengthens the case for a further rate cut by the Federal Reserve in its next meeting this week.

Over 1,000 US companies reported earnings this week including big technology companies such as Alphabet, Microsoft, Meta, Amazon and Apple. Stocks declined sharply on Thursday despite the optimistic economic data as investors assessed the earnings of the big tech companies.

The S&P 500 lost 1.37% as compared to 0.11% decline in the previous week. In the UK, the FTSE 100 continues its losing streak as the index declined by 0.87% this week. Globally, as represented by the MSCI World Index, stocks declined by 1.52% from a loss of 0.65% in the previous week.

What this means for you: The pre-election market volatility remains high as the election date comes closer. This should not be a source of concern for long-term investors.

Nigeria’s Market Update

Macro Update

Proposed Fiscal Reforms to VAT Distribution model

The Fiscal Policy and Tax Reforms Committee of the Federal Government is proposing significant changes to the distribution of revenue from value added tax (VAT) among the federal, state and local governments. Historically, 15% of VAT revenue is received by the federal government, 50% by states, and 35% by local governments. However, the recent reform proposals aim to reduce the federal share to 10%, increasing the collective share of states and local governments to 90%, from which 60% would be shared based on derivation.

This means that states with stronger economic activity, which aid the collection of VAT, will receive more share of the VAT revenues. This incentivises states to support their economy. It is also bound to create winners and losers. In this respect, the reform is being contested by state governors given that economic activity is concentrated in a few states.??

What this means for you: The VAT reform is overdue and has the potential to realign the priorities of states towards economic growth, which should enable broad based development across Nigeria and outside the big cities. For now, it is hard to conclude on how it will affect individuals until we consider the version of the reforms that are implemented and the timeline.??

Equities Update

Aradel’s Share Price Down by Over 72.68% Due to Profit Taking

Aradel’s market capitalisation, which had initially surged to N3.35 trillion upon its debut on the NGX, has declined drastically to N1.94 trillion as its stock price decreased by 29.54% from N702.69 to N495.10. Investors engaging in profit taking drove this decline. Profit taking happens when early buyers sell shares to lock in gains after a rapid rise, leading to downward pressure on the price.

The NGX All-Share Index (ASI) declined by 2.03%, closing at a market capitalisation of N59.03 trillion and the YTD (year-to-date) market returns closed at +30.30%. On a dollar adjusted basis, Nigerian stocks have lost -29% YTD.

Across sectors, market performance was uneven as the banking and oil and gas sectors recorded gains of 0.19% and 1.15% respectively, while the industrial goods sector recorded a decline of 3.70% and the consumer goods sector saw a decline of 0.22%.

What this means for you: We do not like Nigerian stocks right now as long-term investors. Investing in the S&P 500 would have delivered a dollar return of 20.10% YTD and naira return of 120.35%, which is better. Until we see a consistent trend of macroeconomic stability, which will be obvious in low inflation and stable exchange rates, we maintain an exposure to the US market.?

Fixed Income Update

Mixed Yield Movement in the Fixed Income Market

The yield on the 91-day and 182-day treasury bills declined to 21.62% and 25.90% respectively from 21.71% and 26.21% in the previous week.? The 365-day treasury bill yield rose to 24.48% from 23.52%.?

In the bond market, yields increased to an average of 18.95% from 18.76% in the prior week.

What this means for you: The yields on the money market instruments?remain high which is good for saving in the short-term. However, for dollars and long-term goals, it is best to save in dollars. You can do both?with us on Ladda, a fintech app that helps you save at high returns. We do not recommend naira treasury bills and bonds for long-term investing.?

FX Update

Naira Weakens by 1.93% in the Official Market

The External reserves of the CBN increased by 0.84% to $39.77 billion from $39.44 billion last week. Meanwhile, the naira depreciated by 1.93% in the official market, closing at N1,666.72 from N1,635.19 in the previous week.?

What this means for you: Although the naira remains prone to depreciation due to internal fiscal imbalances and external pressures, the increase in the external reserves is slightly reassuring.?

Remember to always save for your dollar goals in dollars. You can do this with us on Ladda—a fintech app that helps you save at high returns.