In the out gone week investors in the US and European markets heaved a sigh of relief as the Greek government announced a change in government. Former Vice President of European Central Bank (ECB), Mr. Lucas Papademos replaced Mr. George Papandreou. It is expected that the new Prime Minister in consensus with the other opposition parties will sign the 130bn financial aid deal and cement the countrys position in the Euro Zone. This will forestall the high likelihood of default had Greece turned down the bail-out and the repercussive effect this will have on euro zone economy as well as global financial system.The Nigerian bourse traded for 3 days in the week, with the index dipping 3 days in a row. Weak confidence in the pace of recovery kept stock prices at very low levels. At this low prices we advocate an accumulate strategy because dividend yield on some of the stocks will be in excess of 10% based on our earnings forecast. This will however be a long term strategy rather than short term profit taking measure.The NSE All share index recorded a cumulative loss of 0.57% this week. Excluding DANGCEM the NSEASI would have lost -0.91%. The index ended the week at 20,416.10pts with corresponding market capitalization of NGN6.479trn. Average volume of transactions upped by 19.5% while value of transactions fell 16.7% relative to previous week. A total of 937million units of shares worth NGN5.98billion were traded in the course of the week.2011Q3 Earnings Declaration in PerspectiveBankingMarket reaction to banking counters is not reflective of substantial leap in fundamentals achieved by the sector players. On the average, the banks are trading at a forward P/E of 6.2x underscoring the price attraction of the sector. The outlook for the sector in the coming year looks robust given the present high yield environment which in our opinion will persist far into 2012 given the inflationary pressure expected from fuel subsidy removal. Even though high lending (due to high MPR) rates maybe a disincentive to credit growth to the private sector, the haircut in banks net interest earnings will be buffered by high rates at the money and fixed income markets. The successful implementation of cashless economy policy as well as the mobile money platform (given its success in Kenya) is expected to bring the large unbanked population into the banking net.Insurance:The insurance sector continues its placid performance, with counters trading at close to nominal values. The major driver of the sector remains strict regulatory oversight, with the effect of local content policies and Market Development and Restructuring [MDRI] initiatives expected to drive performance in the near-term. With the expectation on lower reinsurance ceding to foreign companies, and improved risk assessment structures, underwriting performance should experience positive progression.We are overweight on improvements in investment income, given the persistent rise in interest rates (MPR: 12%), resulting in favorable yields in the fixed income markets, with the expectation that insurers would report improvements in investment income, whose performance are largely driven by returns from short-term fixed and money market instruments. Consumer staples:The outlook on commodity prices looks optimistic for players in the consumer staples sector. The increased global wheat supply driven by the mid-year removal on the ban of wheat exportation by Russia, favorable weather conditions in agricultural producing nations should result in gross margin improvements for flour millers. The brewers on the other hand have kept a robust margin in the face of rising of commodity price, with the optimistic forecast on weather condition for the next year the sector is looking forward to a promising year. Against this backdrop we anticipate robust earnings growth and healthy margins. However, unfavorable local operating overheads pose a downside risk if not well managed by management.Oil and GasAlthough the global economy has been growing almost at a slow pace in the last few months caused by the euro sovereign debt crises, US rising debt level, Japanese earthquakes during the first quarter of the year and Chinas battle with swooping inflation in which all these affected global demand for commodities including crude oil, companies in the downstream sectors continue to churn in encouraging numbers even in their recently released 3rd quarter results excluding MRS Oil Nigeria Plc [NSE ticker: CHEVRON] which experienced dip in its bottom-line both on y/y and q/q basis.
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