SAT 26 JUNE, 2021-theGBJournal- The Federal Executive Council (FEC) approved a supplementary budget of NGN895.84 billion and has been sent to the National Assembly for approval. The supplementary budget consists of NGN83.56 billion for the COVID-19 vaccine programme, (2) NGN41.60 billion for salaries and other health-related expenditure, (3) NGN48.20 billion for recurrent expenditure on defence and security, and (4) NGN722.40 billion for capital expenditure on defence and security.
We note that the government aim to fund the supplementary budget through drawing on existing World Bank loan (USD113.20 million), (2) borrowing from special reserve levy accounts (NGN135.00 billion), and (3) new borrowings (NGN722.53 billion).
We expect the new borrowings to be financed domestically, raising the expected total domestic borrowing for the year to NGN3.06 trillion from NGN2.34 trillion. We think this development prompted the DMO to over-allot in the June bond auction exercise (total allotment: NGN330.30 billion) – the highest since May 2020 (NGN390.70 billion).
According to the May 2021 domestic and Foreign Portfolio Investment (FPI) report, total market transactions at the Nigerian Exchange Limited (NGX) declined for the second consecutive month to NGN97.19 billion in May (April: NGN159.93 billion) – the lowest since August 2020 (NGN94.45 billion).
We believe the sustained decline in the value of transactions executed at the local bourse reflects the spillover effects of the uptick of yields in the fixed income space and persistent liquidity challenges in the FX market. Accordingly, domestic (-41.7% m/m to NGN76.90 billion) and FPI (-27.6% m/m to NGN20.29 billion) participation declined significantly compared to the previous month.
Despite the attractiveness of Nigerian stocks compared with peers (PE ratio: 12.86 vs EM average: 22.90), we highlight that the FPI participation is now the lowest since the NGX started keeping records in 2013.
We maintain our expectation of weak domestic and foreign investors’ participation on the local bourse in the near term due to elevated yields in the fixed income space and lingering liquidity constraints in the FX market.-With Cordros Analysts.
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